Amazon investors are focusing on earnings, revenue growth, cloud services, and retail margins.

Amazon investors are focusing on earnings, revenue growth, cloud services, and retail margins.

Amazon Reports Record Delivery Speeds in Q2, Investors Eager for Growth Signals

Amazon

Amazon announced on Monday that it achieved record delivery speeds in the United States during the second quarter, while also managing to cut costs. This news comes ahead of the company’s Q2 financial report, where investors are eagerly anticipating growth indicators in its e-commerce business. Additionally, investors are seeking updates on Amazon Web Services (AWS), the company’s cloud provider, ad revenue growth, and insights into consumer health in light of ongoing inflation concerns impacting spending.

Investors specifically want to compare AWS to its competitors Microsoft and Google, as both tech giants reported slowed growth in their cloud businesses for the quarter ending on June 30. Amazon has already acknowledged a decrease in AWS growth as businesses reallocate their spending to reduce costs. However, Tom Forte, a senior research analyst at financial firm D.A. Davidson Companies, believes there is substantial potential for cloud computing, including Microsoft’s Azure and Google Cloud, to benefit from companies interested in artificial intelligence (AI). Nevertheless, as consumers tighten their spending habits, businesses investing in AI and cloud tools are forced to reconsider their expenses, which may influence cloud computing growth.

During Amazon’s first-quarter call in April, Chief Financial Officer Brian Olsavsky stated his expectation of a slowdown in the company’s cloud business as enterprise clients became more cautious with their spending. Beyond cloud services, investors are also keen to understand how Amazon’s advertising business, aided by language models and generative AI, is performing. In the first-quarter earnings call, Chief Executive Andy Jassy highlighted the “robust growth” of Amazon’s advertising business due to investments in machine learning. A comparison to Google’s 3.3% increase in advertising revenue, reaching $58.1 billion, will shed further light on Amazon’s progress in this area. Notably, Google experienced a broader advertising pullback, but its ad sales for YouTube still rose to $7.67 billion, a 4.4% increase compared to last year.

In the first quarter, Amazon’s advertising business reached net sales of $9.51 billion, and investors are expecting further growth to $10.3 billion in the second quarter. As for the retail front, investors are curious to know how Amazon plans to sustain consumer engagement on its platform amid a deceleration in discretionary spending. June saw a nominal increase of only 0.2% in U.S. retail sales, giving rise to concerns.

Fortunately, Amazon has been proactive in addressing these challenges. The company delivered over 1.8 billion units to U.S. Prime members on the same or next day, which represents a nearly fourfold increase from the same period in 2019. Doug Herrington, Amazon’s chief executive of Worldwide Stores, stated this is a result of creating a regional fulfillment network, situating products closer to shoppers, and expanding same-day delivery. These measures have not only reduced costs for consumers but also for the company itself.

Prime Day, which took place on July 11-12, will not be included in Amazon’s second-quarter results as it concluded on June 30. However, the retail giant set record sales for the first half of the event and plans to host another Prime event in the fall. The market has responded favorably to Amazon, with its shares up approximately 57% year-to-date, compared to a 19% rise in the S&P 500 index. Additionally, Amazon’s forward price-to-earnings multiple stands at 60.94, exceeding Walmart’s 24.39 and Microsoft’s 30.49. Clearly, investors have confidence in Amazon’s growth potential.

More Third-Party Sellers Bolster Amazon’s Ad Business

In the first quarter, Amazon boasted a profit margin of 46.77%, with analysts expecting a slight decrease to 46.53% in the second quarter. To foster additional growth and enhance its ad business, Amazon has been actively increasing the number of third-party sellers on its platform. This strategy has proven successful, as vendors can now purchase ad space in search results and leverage other tools to catch customers’ attention amidst a sea of products.

“The number of third-party sellers selling on Amazon is increasing, and if that continues, more of them will likely advertise on Amazon,” said Arun Sundaram, vice president of equity research at CFRA.

Amazon’s first-quarter operating income reached $4.77 billion, representing a 74.4% increase from the previous quarter and a 30.1% increase from the same period last year. As the company navigates the challenges of a changing retail landscape, investors are eagerly looking for Amazon’s game plan to enhance the profitability of its e-commerce business throughout the rest of the year. Ultimately, stakeholders are optimistic that Amazon’s strategic initiatives and ability to adapt will lead to sustained growth and continued success.

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