Key Takeaways
- Amazon shares tumbled Friday, a day after the company reported second-quarter revenue that missed projections and offered weaker-than-expected guidance.
- Sales for Amazon’s e-commerce operations grew slower than expected in the quarter, as the company said consumers were price-conscious and hesitant to make large purchases.
- Amazon Web Services drove growth for the quarter, and analysts said demand for Amazon’s cloud and AI services could grow further in the second half of the year.
Amazon (AMZN) shares tumbled Friday, a day after the company posted second-quarter revenue that missed estimates and the company’s guidance for the third quarter fell short of what analysts had expected.
While a number of analysts lowered their price targets for Amazon following the company’s earnings report, they remained bullish on the company’s outlook, anticipating growth from Amazon Web Services (AWS) and margin improvement for Amazon’s retail business.
Retail Growth Pressured as Consumers Hunt for Value
Amazon CFO Brian Olsavsky said in Tuesday’s earnings call that Amazon has seen consumers be “careful with their spend” and look for the lowest-cost options, putting pressure on growth of Amazon’s retail segment.
A number of Amazon’s competitors like Target (TGT) and Walmart (WMT) have also noted in recent earnings calls earlier this year that discretionary spending has fallen as inflationary pressures weighed on consumers.
Still, margins in Amazon’s retail segment could stand to benefit from steps Amazon is taking to improve its delivery network and lower costs, according to Bank of America analysts. Efforts to improve the customer experience “reducing friction for shoppers” could also help Amazon gain market share, Jefferies analysts said.
AWS Poised To Fuel Growth in Second Half With Cloud, AI Demand
AWS was a key driver of growth in the second quarter, with Amazon reporting a 19% jump in AWS revenue year-over-year. Analysts said they expect that trend could continue in the second half of the year as demand rises for the cloud storage and artificial intelligence (AI)-related services from AWS.
JPMorgan, Wedbush, and Jefferies analysts projected AWS revenue growth of between 19% and 21% year-over-year in the third and fourth quarters of 2024.
Amazon CEO Andy Jassy said Thursday that AWS has released “more than twice as many machine learning and generative AI features” than other major cloud providers combined.
Amazon shares were down nearly 10% to $166.42 as of 3 p.m. ET Friday, though even with Friday’s losses, they’ve gained over 9% since the start of the year.