Amazon (NASDAQ:AMZN) is scheduled to report its Q1 earnings on April 25. The company’s Q4 results beat consensus expectations, despite issues in Indian operations and accounting changes due to Whole Foods. We expect the company to see sustained growth across segments this time around. Margins in the international segment may take a hit on account of the expectations of Amazon exiting China.
We currently have a price estimate of $2,049 per share for Amazon, which is about in line with the current market price. Our interactive dashboard on Amazon’s Q1 Earnings Expectations outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.
- North America: In Q4, revenue grew to $44.1 billion (+18.3% y-o-y), while the segment operating margin improved to 5.1% (+60 bps y-o-y). The weakness in online stores was an accounting issue due to the re-alignment of Whole Foods’ fiscal calendar. For Q1, we expect revenue growth to sustain and the benefits of scale flowing to the company’s income.
- International: In Q4, revenue grew to $20.8 billion (+15.5% y-o-y), while operating margin improved to -3.1% (+200 bps y-o-y). Amazon is expected to exit its Chinese operations by July. Considering the issues that the company has been facing in India, we expect the segment to remain under pressure from a margin perspective in Q1. Volumes could come in stronger on the back of discount-led selling.
- AWS: In Q1, revenue grew to $7.4 billion (+45.3% y-o-y), while the operating margin improved to 29.3% (+280 bps y-o-y). While competition is increasing in the cloud space, AWS remains a market leader and we expect segment performance to remain strong in Q1.
- Advertising: In Q4, revenues grew 97% y-o-y. Given the shift of marketing dollars from Google, Amazon’s advertising business is likely to continue seeing strong growth in Q1.
We will be looking for the following aspects for Q1:
- Exit from China: Amazon is widely expected to increase its investments in India in light of its expected exit from China. It will be interesting to understand how the management plans to wade the intensely competitive and complex Indian market.
- Traction in Prime: Prime subscriptions have seen tremendous growth, and Amazon has been investing heavily in its own original content to rival Netflix. We will be hoping to hear from the management on whether its investments in content are also likely to take as long as it has taken Netflix to approach cash flow profitability.
- AWS: Amazon and Microsoft are the only remaining players in the fray for the prestigious $10 billion JEDI contract. While Amazon is the only vendor cleared to host confidential government security data, Microsoft has been waiting on clearance. Also, Oracle has been making claims about the superiority of its cloud product vs. AWS. We will be hoping to hear about potential competitive wins to gauge the intensity in the market.
Overall, we expect Q1 revenue and net income to be $67.7 billion and $2.7 billion, respectively.
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