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Key Takeaways
- Amazon reports earnings after the market closes Thursday, with analysts expecting profits to fall from the prior quarter but rise from a year ago.
- Investors will likely be watching the tech giant’s margins amid concerns consumer weakness, growing labor costs, and higher spending on artificial intelligence could squeeze profits.
- Analysts have suggested Amazon’s high-margin advertising revenue and AWS growth could help offset the costs.
Amazon (AMZN) reports earnings after the bell Thursday, with investors likely to be watching the tech giant’s margins amid concerns consumer weakness, growing labor costs, and higher spending on artificial intelligence (AI) could squeeze profits.
Amazon shares took a hit after the company released its second-quarter report in July, as its quarterly sales and outlook missed expectations. Since then, shares have largely recovered to their level before the report, leaving them about 24% higher for the year so far at $187.83 as of Friday’s close.
Analysts expect Amazon’s third-quarter revenue to come in at $157.24 billion, up from the prior quarter and year-ago period. However, profits are projected to fall sequentially to $12.32 billion as expenses climb, despite rising roughly 25% year-over-year.
| Analyst Estimates for Q3 2024 | Q2 2024 | Q3 2023 | |
| Revenue | $157.24 billion | $147.98 billion | $143.08 billion |
| Earnings Per Share | $1.15 | $1.26 | 94 cents |
| Net Income | $12.32 billion | $13.49 billion | $9.88 billion |
Key Metrics: AWS, Advertising Revenue
Amazon Web Services (AWS) and a growing advertising business for showing ads on Prime Video have been key sources of revenue growth so far this year. A migration to cloud storage and growing use of AI products have helped boost AWS revenue. Jefferies analysts said recently their checks suggest growing AWS revenue in the third quarter.
The analysts also said they have seen “solid & improving” demand for ad spending with Amazon. Wedbush analysts said they believe high-margin ad revenue could help offset big spending from Amazon to fuel its AI efforts, along with things like Project Kuiper, its planned satellite broadband project.
Business Spotlight: Returns on AI Spending
A number of big tech companies including Amazon face pressure from investors to show that their spending on AI is paying off. Amazon CEO Andy Jassy said in the company’s first-quarter earnings call that it wouldn’t be spending so much on AI if it didn’t see “very clear signals” that Amazon could monetize it.
JPMorgan analysts told clients earlier this month it will be important for Amazon, along with Google parent Alphabet (GOOGL) and Meta Platforms (META) to “highlight their early returns on AI spending” in their coming earnings calls.