Amazon is on deck in the Big Tech earnings lineup, following a week in which Meta flopped while Alphabet and Microsoft soared. Heading into the report, Amazon stock is off to a strong start this year despite a recent pullback.
The e-commerce and cloud-computing giant will release its first quarter results after the market closes on Tuesday. Amazon stock analysts will be closely watching the Amazon Web Services cloud business, the growth of Amazon's advertising business and whether the firm can continue improving the profitability of its giant retail operations.
Further, Meta and Google have both introduced dividends this year — prompting speculation about whether Amazon could do the same. Here's what to know about Amazon stock ahead of the report:
By The Numbers For Amazon Earnings
Overall, Amazon is expected to post a 12% year-over-year increase in sales for its March quarter, to $142.65 billion, according to FactSet. Analysts expect earnings per share to rise 170% to 84 cents per share, according to FactSet.
Operating income is expected to come in at $11.2 billion, up 135% from the same period a year earlier. Amazon Web Services is seen contributing $7.5 billion in operating income, while Amazon's North America retail business drives $4.3 billion. Amazon's international operations are expected to post a loss of $570 million.
Amazon Stock: Watching AWS
Investors have been closely watching AWS for more than a year. That's because AWS already drives the majority of Amazon's profits and is the business seen as most likely to benefit from generative artificial intelligence. Plus, the division is recovering from an industrywide spending slowdown that began in 2022.
Analysts are expecting sales growth to accelerate for a second straight quarter, showing the cloud business is on the mend.
According to FactSet, analysts expect a 15% year-over-year sales increase for AWS, representing $24.56 billion in revenue. Sales grew 13% in the December quarter.
In a positive sign, both of Amazon's cloud rivals, Microsoft and Google, said in earnings reports last week that their cloud sales accelerated last quarter.
Both Microsoft and Google officials pointed to AI and stronger overall cloud demand for improved results, Stifel analyst Brad Reback wrote to clients Friday. "The final piece in the 1Q consumption puzzle will be AWS' results and commentary," he added.
Amazon E-Commerce Preview
With AWS revenue looking more steady, "We believe investor focus for 1Q24 has expanded into looking at total franchise revenue and operating income versus more narrowly on AWS growth," UBS analyst Stephen Ju wrote in a recent Amazon earnings preview.
Ju rates Amazon a buy ahead of the report, with a target price of 215, up from a previous target of 198. He expects Amazon's e-commerce business to accelerate this year due to "greater service levels, namely expanding availability of one (day) and same day Prime delivery."
On a related note, Amazon announced Monday that 60% of its Prime deliveries so far this year have arrived either the same day or next day across the 60 largest U.S. metro areas. That is up from 50% last year.
Amazon Q1: Watching Advertising
Meanwhile, Amazon began selling commercials for the first time on its Prime Video service in January.
That adds a new wrinkle to an advertising business that has been Amazon's fastest growing division by revenue for several quarters. The majority of Amazon's ad revenue comes from selling placements on its e-commerce marketplace.
Analysts project advertising sales will increase 23.5% year over year to $11.74 billion, according to FactSet.
Amazon Stock: Watching Capex Costs, Dividend Speculation
Amazon's AI-related costs could come into focus as well. Shares of Meta tanked on Thursday after the social media giant raised its capital expenditures guidance to support its own AI ambitions.
Cloud providers, led by Amazon, are investing significantly to expand AI capabilities, including acquiring advanced chips and constructing new data centers. Microsoft and Google have already said that they are spending more to build AI data centers.
Analysts will be listening for whether Amazon provides an update on its spending plans for the year. That could also affect another area of speculation: whether Amazon follows Google and Meta in adding an investor dividend.
"We think the chances of a dividend are 0%, but AMZN has $6.1 billion remaining on its current share buyback authorization, and (CFO Brian Olsavsky) was giddy when asked about it on last quarter's call," New Street Research analyst Dan Salmon said in a recent client note.
Amazon has ample "dry powder," Salmon added, so an increase in Amazon's buyback authorization is possible.
"But this must be balanced with capital expenditures, which we think are likely to go higher than current consensus to fund generative AI investment," Salmon wrote. New Street rates Amazon stock a buy ahead of the report, with a target price of 235.
Amazon Stock Pulls Back After All-Time High
On the stock market today, Amazon stock gained .75% to close at 180.96.
But the stock has pulled back slightly heading into Amazon earnings. Shares hit an all-time high for the first time in two years on April 11, closing at 189.05. But Amazon has posted gains in just four out of the 12 trading days since then. Shares are off the April 11 high by about 5% as of Monday. Amazon shares are up about 18% from the start of the year.
The IBD Stock Checkup tool shows Amazon stock with a Relative Strength Rating of 91 out of a best-possible 99, indicating the stock has outperformed most of the market over the past 12 months.
Amazon stock also holds an IBD Composite Rating of 95 out of a best-possible 99. The score means Amazon stock currently tops 94% of all other stocks in terms of key performance metrics and technical strength.
