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Discover how Amazon’s strong AWS performance contrasts with slower retail growth and missed advertising expectations in the latest earnings report.
Amazon Earnings Breakdown
Amazon (AMZN) released its earnings report on August 1. Revenues were lower than expected in the second quarter, leading to a disappointing forecast for the next quarter. Amazon surpassed the expected revenue from web services, which increased 19% in the second quarter and had an annual growth rate of 20% in advertising revenue. However, it fell short of the expected revenue of $13 billion, making $12.8 billion from advertising and sparking gloomy predictions. The Wall Street Journal expects future advertising revenue to be even lower.
Good Morning Everyone! It's tough out there:
– Amazon down -8% after missing earnings
– Intel drops -20% (biggest drop in 24 years), cuts dividend, and lays off 15% of staff
– Snapchat down -30% on revenue miss
"Magnificent 7" swung +$3 trillion in market cap over 3 weeks.… pic.twitter.com/4QnCmByIaH
— Genevieve Roch-Decter, CFA (@GRDecter) August 2, 2024
Operating income significantly increased to $14.7 billion in the second quarter, up from $7 billion in the same quarter last year. The third quarter’s operating income is expected to be $11.5 to $15 billion, up from $11.2 billion in last year’s operating income. The company’s core retail business has shown minimal growth due to discount sites such as Temu and Shein, which have increased market competition.
THE REASON $AMZN AMAZON IS DOWN IS BECAUSE THEY CANNOT MAKE MONEY ON THEIR RETAIL BUSINESS!!
OPERATING MARGINS WENT DOWN TO 9.9% FROM 10.7%.
Although the beat expectations of margins being at 9.2%, I think the stock completely would be different after earnings if they came in… pic.twitter.com/Tfh7gfx1ix
— amit (@amitisinvesting) August 1, 2024
Against 7% growth in the first quarter, Amazon’s online store sales grew by 5% to $55.4 billion in the second quarter
E-commerce and Cloud Services to Help Amazon Recover
The E-commerce business is going strong, and it is very relevant for Amazon as online retail accounts for most of its revenue. Domestic sales have seen a double-digit increase. The sheer power of the company’s sprawl can be determined by its delivering 4 billion orders in a single day in 2023. Amazon Web Services (AWS) owns 31% of the market. The company plans to invest $150 billion in data centers in the next 15 years. Moreover, it poured $4 billion into generative AI company Anthropic, a competitor of OpenAI. The tech giants’ streaming business is also going strong. With 200 million monthly Prime viewers, revenue from this stream has grown by double-digits.
The company is focused on improving its customer experience by targeting delivery speed and expanding its selection. Amazon is keeping the margins in check by investing heavily in drones. Amazon Prime Air’s drone delivery service will be launched in the UK and Italy in 2024 to reduce delivery time.
Amazon Stock Price Prediction
Most analysts believe that Amazon’s stock performance depends on AWS, advertising, and e-commerce. In the previous decade, its shares increased by around 540%, with estimates for net income to increase by 4.5X.
Analysts also expect AWS revenue to break $100 billion this year. 24/7 Wall Street’s yearly projection is that the stock will touch $225. In the long term, they see revenue touching $1.15 by 2025 with a $131 billion net income. The analysis puts Amazon’s total value at $2.6 trillion by the decade’s end. For 2023, the stock price is seen at $370 per share, with 10% YoY growth in revenue. Furthermore, a recent analysis shows that cloud businesses account for less than 10% of IT spending but can grow to 90%. Therefore, AWS stands to capture a considerable share of the market.
Amazon CFO Brian Olsavsky mentions that events such as global economic uncertainty, the Olympics, and competitor market competition are likely to impact the third-quarter forecast.
