This week marks a crucial moment for investors as both Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) are gearing up to release their quarterly earnings, marking the end of the reporting season for FAANG stocks. Amazon has been an exceptional performer in 2023, boasting a year-to-date gain of 57% and surpassing the tech-heavy Nasdaq Composite ($NASX). It currently stands as the second-best performing FAANG stock, trailing only behind Meta Platforms (NASDAQ:META), which has soared an astonishing 167% with its focus on efficiency.

However, it hasn’t been smooth sailing for Amazon in the past. In 2022, the company saw almost half of its value wiped out, and it underperformed its tech peers even in 2021, barely finishing the year in the green and lagging behind the broader market significantly.

Scheduled to report its Q2 earnings after the closing bell on Thursday, August 3, Amazon is expected to post revenues of $131.4 billion for the period, representing an 8.3% year-over-year increase, falling within the $127 billion-$133 billion guidance range provided during Amazon’s Q1 earnings release. Analysts anticipate a notable rise of 240% in the company’s earnings per share (EPS) to reach $0.34 in the quarter. Although Amazon doesn’t provide EPS guidance, it projected Q2 operating income to range from $2 billion to $5.5 billion during the Q1 earnings call, compared to $3.3 billion in the second quarter of 2022.

Revenue Growth and Margins

Aside from these headline figures, investors should keep a close eye on several other key metrics during Amazon’s upcoming earnings release. One crucial area to watch is the revenue growth and margins of Amazon’s North America segment, as it shows signs of continued improvement. In Q1 2023, the segment’s revenues rose by 11%, and its operating income stood at $0.9 billion, a remarkable turnaround from an operating loss of $1.6 billion in the first quarter of 2022.

On the financial front, Amazon has been implementing aggressive cost-cutting measures in response to slower revenue growth. Investors will be eager to hear about any further cost-cutting efforts that could positively impact the company’s bottom line.

Amazon Web Services (AWS) 

Another area of focus is Amazon Web Services (AWS), which has been a key driver of Amazon’s profitability and cash flows. In the first quarter, AWS revenue growth hit an all-time low of 16%, raising concerns among investors. Amazon stock experienced a dip after its Q1 2023 earnings release, partly due to management’s commentary on the AWS cloud business, overshadowing the company’s impressive earnings beat. Competitors like Alphabet and Microsoft reported much higher growth rates in their cloud revenues, emphasizing the importance of AWS’s performance in Amazon’s overall results. 

During the earnings call, investors should pay attention to updates on Amazon’s guidance, especially regarding AWS. With a challenging economic environment for corporate spending, any insights into how AWS customers are adjusting their cloud budgets will be crucial.

Amazon’s Advertising and AI

Amazon’s advertising business is also worth monitoring, having generated $9.5 billion in revenues during Q1 2023, a 21% increase compared to the same period last year. Despite the general slowdown in the digital ad market, this segment has shown resilience.

Moreover, Amazon’s efforts in artificial intelligence (AI) initiatives, aimed at enhancing delivery speeds and cutting logistics costs, will likely be a topic of discussion. The company’s creation of a new internal team dedicated to AI, reporting directly to CEO Andy Jassy, has attracted attention.

Analysts Are Bullish on Amazon Stock

Wall Street analysts are overwhelmingly bullish on Amazon stock, with the majority giving it a Strong Buy rating. Some analysts see potential in AWS revenue growth as a catalyst for unlocking further value in AMZN. The stock’s mean target price of $147.14 suggests a 10% upside from its current price.

As Amazon prepares to unveil its Q2 earnings and conclude the mixed earnings season for FAANG shares, the spotlight will be on AWS results as they may play a decisive role in determining the stock’s direction after the report.

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