The Q3 earnings season is well underway, with tech giants like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG) recently reporting their quarterly results. Amazon (NASDAQ:AMZN), another mega-cap player, is set to unveil its earnings on Thursday, October 26. Here’s a closer look at what Wall Street expects from this e-commerce behemoth’s Q3 earnings, along with five crucial aspects investors should be keeping an eye on.
Amazon Q3 Earnings Preview
Wall Street analysts have their eyes on Amazon, anticipating Q3 revenues of $141.6 billion, marking an 11.4% year-over-year increase. During the Q2 earnings call, the company provided Q3 revenue guidance in the range of $138 billion to $143 billion. Additionally, analysts expect Amazon’s Q3 per-share earnings to nearly double year over year to $0.58.
It’s worth noting that Amazon’s profits took a hit in 2022 due to high inflation and rising wage costs. However, the company has implemented various cost-saving measures, including mass layoffs, postponing the construction of its HQ2 in Virginia, and reducing overhead expenses. These initiatives began to bear fruit in Q2, with Amazon reporting an operating income of $7.7 billion, surpassing its previous guidance of $2 billion to $5.5 billion.
What to Watch in Amazon’s Q3 Earnings Report
Given Amazon’s significant presence in multiple industries, its Q3 report carries great importance. Here are five key aspects to watch for in Amazon’s Q3 earnings:
1. Commentary on U.S. Consumer and Q4 Guidance
Keep an eye on Amazon’s comments regarding the state of the U.S. consumer. Despite gloomy outlooks from retailers like Macy’s (NYSE:M), Target (NYSE:TGT), and Dick’s Sporting Goods (NYSE:DKS), Amazon announced its plans to hire 250,000 seasonal employees for the holiday season, signaling optimism about holiday shopping trends. Observations on economic indicators and Q4 revenue guidance will be crucial.
2. AWS Performance in a Slower Economy
Amazon Web Services (AWS) will be under scrutiny once again. Q2 results indicated that AWS was “stabilizing,” with revenue growth outperforming expectations. Check for further signs of AWS’s performance in the Q3 earnings.
3. Free Cash Flow Generation
Amazon’s free cash flow is a key valuation driver. The company’s free cash flow profile has improved in recent quarters, turning positive in the trailing 12-month period ending June 30. Watch for Q3’s free cash flows to gauge Amazon’s financial health.
4. The FTC Lawsuit and Potential Split
The Federal Trade Commission (FTC) has filed an antitrust lawsuit against Amazon, which could lead to potential business split. Investors will be eager to hear if Amazon has any plans in this regard during the Q3 earnings call.
5. Competition From Chinese E-Commerce
Chinese e-commerce companies like Shein and Temu are gaining ground in the U.S., offering cheaper alternatives. Amazon might address its strategies to compete with these platforms.
Wall Street holds a bullish outlook on Amazon, with analysts rating the stock as a Strong Buy. The median target price of $169.51 is nearly 33% higher than current levels. The recent market sell-off has led to a drop in Amazon’s stock price, potentially setting the stage for a post-earnings rally if the company delivers favorable results, as it did in Q2.
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