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Solid AWS Momentum to Benefit Amazon's (AMZN) Q3 Earnings

Amazon’s AMZN third-quarter 2020 results, which are scheduled to be released on Oct 29, are likely to reflect gains from its strengthening cloud services offerings.

The cloud computing division, Amazon Web Services (“AWS”), dominates the cloud market on the back of its growing adoption and popularity. This is anticipated to get reflected in the company’s third-quarter results.

We note that solid momentum across AWS has been aiding Amazon in generating high margins from the cloud business. This trend is expected to have continued during the to-be-reported quarter.

AWS revenues were $10.8 billion, accounting for 12.2% of net sales in the second-quarter 2020 reported quarter and surging 29% year over year. We further note that AWS’s operating income improved 58.3% from the year-ago quarter to $3.6 billion.

We believe an expanding customer base and a strong discount offering for long-term deals are likely to have driven the AWS top line in the quarter under review.

The Zacks Consensus Estimate for third-quarter 2020 AWS net sales is projected at $11.5 billion, indicating an improvement of 28.1% from the year-ago quarter’s reported figure.

Click here to know how the company’s overall third-quarter results are likely to be.

Amazon.com, Inc. Revenue (TTM)

 

Amazon.com, Inc. Revenue (TTM)

Amazon.com, Inc. revenue-ttm | Amazon.com, Inc. Quote

Factors to Consider

The company’s consistent efforts toward the expansion of AWS’s product and services portfolio are likely to have helped it maintain dominance in the highly competitive cloud market over Microsoft’s MSFT Azure, Alphabet’s GOOGL Google Cloud and International Business MachinesIBM cloud division, to name a few, in the to-be-reported quarter.
    
During the third quarter, Amazon expanded the cloud services portfolio by unveiling and making several AWS services generally available. The initiatives are likely to have driven AWS’ssales in the quarter under review.

Further, the impacts of its strengthening data center network, and growing number of regions and availability zones are expected to get reflected in AWS’ third-quarter results.

Additionally, the company’s partnerships are anticipated to have benefited AWS in the quarter under review. Notably, it entered a multi-year agreement with Global Payments in the third quarter to transform the latter’s core issuing platform.

Expanding Clientele: Key Catalyst

In the soon-to-be-reported quarter, Jack in the Box went all-in on AWS by migrating from its on-premises data centers to the latter.

Further, job site provider Indeed selected AWS as its preferred cloud provider.

AWS also got selected by HSBC Holdings as a key, long-term cloud provider. HSBC by migrating to AWS will automate the key processes and boost operational efficiency.

Furthermore, Weta Digital went all-in on AWS to leverage the latter’s storage, security, Machine Learning (ML), storage and analytics in order to allocate its workloads across the world, wherever its creative staff is based.

Additionally, Arcelik selected AWS as its preferred cloud provider for machine learning and analytics to support its entire operations.

Also, AWS got chosen by Moderna as the preferred cloud provider and standard for analytics and machine learning workloads.

Hence, the company witnessed additions to its customer base during the quarter under review, driven by portfolio strength. This is likely to have aided it in accelerating AWS sales in the third quarter.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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