While Amazon continues to show steady revenue growth, it has remained confined to the single digits for five of the last six quarters. This pattern is projected to persist, with analysts forecasting an 8.5% growth in Q2 and a slightly improved figure for Q3.
For years, Amazon Web Services (AWS) has been a key factor in Amazon’s growth. However, there’s a visible slowdown in its expansion as clients curtail spending amid economic uncertainties. In Q1, AWS sales saw a growth of about 16%, marking the slowest rate since Amazon started reporting cloud revenue in 2015.
Brian Olsavsky, Amazon’s CFO, cautioned in April that the company expects more of the same for Q2 in terms of cloud performance. Analysts anticipate growth to further decline to 10% for the period.
Apart from cloud, investors will keenly watch profit margins, alongside artificial intelligence (AI), an area receiving increased attention across the industry.
Analysts at Evercore, who recommend a ‘buy’ for Amazon, posed a critical question in a note this week: will AWS see revenue growth acceleration from Q3 due to the optimization cycle, AI workloads, and easing comparisons? The answer remains uncertain.
AWS’s competitors, Microsoft and Alphabet, recently reported robust results in their cloud businesses, exceeding analysts’ revenue expectations. However, both corporations observed a continued moderation in cloud spending.
Last week, at an AWS Summit, Amazon announced AI-related updates, such as a service that employs AI to transcribe and summarize doctors’ patient visits.
Amazon’s upcoming results will provide investors an insight into whether the company’s ongoing cost-cutting measures are starting to pay off. Evercore analysts predict improved margins in Amazon’s retail business in Q2 as Amazon overcomes the cost spikes from 2022, recovers capacity utilization, and gains efficiencies from the regionalization of its retail operations.
Amazon recently revealed data that indicates improving delivery speeds and efficiencies in its fulfillment network. The company claims it has made significant progress in establishing one-day and same-day delivery as the standard for Prime members, while simultaneously reducing costs.
Amazon also held its annual Prime Day sale, which it proclaimed as its “biggest ever.” Amazon’s guidance for Q3 could provide insight into how much Prime Day boosted sales.
Increasingly, Amazon’s advertising business is becoming vital to its financials. Some industry surveys suggest a gradual recovery in the digital ad market. However, while Meta reported better-than-expected results last week, Snap failed to meet sales expectations and projected a weak forecast for the current quarter.
