February 24, 2024

Vision Cim

Thank Business Its Friday

What to Look For From AMZN

Key Takeaways

  • Analysts estimate EPS of $3.78 vs. $14.09 in Q4 FY 2020.
  • Amazon Web Services revenue is expected to rise YOY.
  • Companywide revenue is expected to rise, but at its slowest pace in years.

Amazon.com Inc. (AMZN) is struggling to maintain the rapid profit and revenue growth it enjoyed in FY 2020. In the company’s most recently reported quarter, earnings sank for the first time in six quarters as revenue growth slowed significantly. The initial boost from people shopping online while sheltering at home during the pandemic has begun to wear off. On top of that, the company must increasingly deal with rising wages and labor shortages.

Investors will be looking to see if Amazon can reverse its earnings decline and revive its revenue growth when the company reports earnings on Feb. 3, 2022 for Q4 FY 2021. Analysts expect earnings per share (EPS) to decline for the second straight quarter as revenue rises at its slowest quarterly pace in at least four years.

Investors will also be focusing on revenue generated by Amazon Web Services (AWS), the company’s high-margin cloud computing business. AWS still comprises a relatively small share of the company’s overall revenue, but it generates the majority of Amazon’s operating income. Analysts are expecting AWS revenue to rise, but at a slower pace than in the two previous quarters.

Shares of Amazon have lagged the broader market over the past year. The stock’s performance gap with the market has gradually widened throughout the last year, but it especially began to broaden around mid-December 2021. After hitting a recent peak in the middle of that month, the stock began to shed recent gains. Those losses accelerated around mid-January but the stock has begun to rebound over the past week in advance of its Q4 earnings report. Amazon’s shares have provided a total return of -9.5%, well below the S&P 500’s total return of 20.5%.

Source: TradingView.

Amazon Earnings History

Amazon reported Q3 FY 2021 earnings results that missed analysts’ expectations. EPS sank 50.5% compared to the year-ago quarter, marking the first decline since the first quarter of FY 2020. Revenue grew 15.3% year over year (YOY), its slowest pace in at least 15 quarters. The company warned in its earnings press release that it was likely to incur billions of dollars worth of additional costs in its consumer business during the fourth quarter due to labor shortages, increased wage costs, global supply chain issues, and higher freight and shipping costs.

In Q2 FY 2021, Amazon’s earnings beat consensus estimates while revenue missed. EPS rose 46.8% YOY, slowing significantly from the 215.7% increase reported in the first quarter. Revenue expanded 27.2% compared to the year-ago quarter, its slowest pace since the first quarter of FY 2020. The company said that it experienced greater numbers of businesses bringing forward plans to move operations to the cloud, which was reflected in the acceleration of AWS revenue.

Analysts expect Amazon’s financial performance to continue weakening in Q4 FY 2021. EPS is expected to plummet 73.2% compared to the year-ago quarter, its fastest decline out of any quarter in at least the past four years. Revenue is expected to grow 9.7% YOY, its slowest pace out of any quarter in at least the past four years. For full-year FY 2021, analysts forecast EPS to fall 2.9%, which would be the first annual decline in at least seven years. Annual revenue is expected to rise 21.8%, which would be the slowest pace since FY 2019.

Amazon Key Stats
  Estimate for Q4 FY 2021 Q4 FY 2020 Q4 FY 2019
Earnings Per Share ($) 3.78 14.09 6.47
Revenue ($B) 137.7 125.6 87.4
Amazon Web Services Revenue ($B) 17.3 12.7  10.0

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also focus on revenue generated by AWS, Amazon’s cloud-computing platform. AWS offers developers a range of on-demand technology services, such as compute, storage, database, analytics, machine learning, and other services. These services are primarily used by start-ups, enterprises, government agencies, and academic institutions. The company’s AWS business generates much higher margins than its e-commerce business. In FY 2020, Amazon’s global retail sales- and subscription-based business segments generated about 88% of the company’s total revenue while AWS accounted for a mere 12%. However, AWS accounted for 59% of total operating income for the year, making it Amazon’s main profit generator.

Growth in AWS revenue has consistently slowed in recent years, despite a brief acceleration in FY 2018. In FY 2015, annual AWS revenue grew 69.7%. Last year, revenue for Amazon’s cloud segment grew at a healthy, but slower, 29.5% pace. However, growth accelerated through the first three quarters of FY 2021. AWS revenue grew 32.1% YOY in the first quarter before accelerating to a pace of 37.0% YOY in the second and again to a pace of 38.9% YOY in the third quarter. Analysts expect the acceleration trend to end, forecasting AWS revenue growth of 35.7% YOY in Q4 FY 2021. But that pace would still be faster than the growth rate posted in the first quarter and the rates posted in each quarter of the previous fiscal year. For full-year FY 2021, analysts expect AWS revenue to rise 36.0%, accelerating from the previous year’s pace of growth.