Amazon is expected to report a staggering 2,500% growth in earnings for the holiday quarter, with earnings per share projected to reach 80 cents, up from 3 cents in the same period the previous year. Additionally, quarterly operating income is forecasted to rise by 280% to $10.4 billion. This impressive growth comes after a year of significant improvement for the e-commerce giant, which saw a swing from a loss of 27 cents per share in 2022 to an expected full-year EPS growth of $2.70.
One factor contributing to Amazon’s positive financial performance is its cost optimization strategy, which involved cutting jobs. Like other tech companies such as Meta Platforms Inc. and Alphabet Inc., Amazon had expanded its workforce during the pandemic but made substantial cuts approximately a year ago. These recent layoffs indicate that Amazon is committed to optimizing its cost structure and operating in “Harvest Mode,” as described by Jefferies analyst Brent Thill.
However, investors and analysts will be looking beyond the earnings report for signs of continued progress and profit drivers with lasting effects. One aspect of Amazon’s recent story is its efforts to enhance the efficiency of its retail fulfillment network. Analysts have expressed optimism about the profit potential of this business, highlighting the ongoing recovery and scaling up of regionalized fulfillment and shipping operations as key factors driving down costs.
Mark Mahaney, an analyst at Evercore ISI, expects strong support for North America retail margin expansion due to Amazon’s efforts in reducing fulfillment and shipping costs. BofA Securities analyst Justin Post predicts that fourth-quarter retail margins will contract slightly on a sequential basis but increase by 4 points compared to the previous year. He also anticipates a retail revenue and margin beat, with potential acceleration in Amazon Web Services (AWS) cloud-computing revenues and significant margin improvement ahead.
Amazon’s advertising business is another area that contributes to its margin growth. Analysts are increasingly optimistic about this business, especially as the company focuses on incorporating ads within its Prime Video platform. MoffettNathanson analyst Michael Morton believes that Amazon’s monetization strategy for Prime Video will drive profitability in 2024.
While margin progress is notable, AWS remains a significant focus for investors. Piper Sandler analyst Thomas Champion highlights that approximately 70% of investor questions he receives revolve around AWS. The growth of AWS, estimated at around 13% year-over-year, will be a crucial factor in determining the outcome for Amazon’s stock.
In conclusion, Amazon’s expected earnings growth for the holiday quarter is remarkable, with a projected increase of over 2,500% compared to the previous year. The company’s cost optimization efforts, particularly through job cuts, have contributed to its financial improvement. Analysts are optimistic about the profit potential of Amazon’s retail fulfillment network and advertising business, while AWS remains a key area of focus for investors. As Amazon continues to demonstrate progress and profitability in various sectors, it is poised for continued success in the future.
