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AkhenOsiris
$AMZN Citi Earnings Preview

Analysts project Amazon’s Q2 revenue to be around $149 billion, which is 40 basis points above the consensus estimates.

They also estimate an 18% year-over-year growth for Amazon Web Services (AWS), slightly above the Street's estimate of 17%.

Amazon’s cloud business stands to benefit from the strong Q4 backlog growth and increasing consumption spend around model training, analysts noted. They believe that $1 billion quarter-over-quarter growth to 18% year-over-year would be healthy compared to peers.

"We saw GCP results as a positive read-thru for AWS, with a 1pt q/q accel. & margin upside suggesting limited pricing pressure," they wrote.

Operating profit is anticipated to come in at $14 billion, 1% above the consensus expectation, but analysts suggest there could be upside potential towards buyside expectations, possibly reaching $15-16 billion, given the beat in Q1, new third-party fees, Prime ad ramp, and limited growth in fulfillment center square footage.

"Biggest risk is 3Q margin guide given high Street expectations, higher freight costs & propensity to bring new fulfillment capacity online in 3Q ahead of holidays,” Citi cautioned.

For guidance, analysts expect Q3 revenue to be between $155.5 billion and $160.5 billion (with the Street at $158.4 billion), suggesting 5% quarter-over-quarter growth at the midpoint.

They project GAAP operating profit to be between $12 billion and $15.5 billion, compared to the consensus of $15.4 billion.

Despite signs of consumer softening, the bank believes Amazon is gaining market share. In terms of margins, recent history and typical Q3 conservatism suggest a profit guide midpoint below the Street, although Q3 margins have improved quarter-over-quarter in retail harvest years.

Given expanding retail margins supported by Prime ad growth and expected AWS acceleration, analysts believe the stock is positioned for a multiple expansion in 2024. AMZN currently trades at 12.8x EV/EBITDA, below its 10-year average of 17x.

"We have highlighted that improving margins support a more traditional P/E valuation framework, and see Amazon's 30.7x Street '25 GAAP EPS as reasonable given 27% expected 2-year GAAP earnings growth CAGR," they said, maintaining a Buy rating on the stock.
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