Amazon Reports Earnings Thursday. Here’s What To Expect.

In reporting results, Facebook parent Meta said among other things that it is “hearing from advertisers that macroeconomic challenges like cost inflation and supply-chain disruptions are impacting advertiser budgets,” which would also suggest some risk to e-commerce demand.

Keep in mind that Amazon’s September quarter results provided a negative surprise, with both reported sales, profits, and guidance falling short of Street estimates. The company projected December quarter revenue of between $130 billion and $140 billion, up 4% to 12%, short of the Street consensus estimate at the time of $142 billion. Amazon projects operating income for the quarter of between break-even and $3 billion. Street consensus estimates now call for revenue of $137.6 billion, with operating income of $2.4 billion and profits of $3.58 a share.

For the March quarter, the Street sees sales of $120.9 billion and profits of $9.50 a share. For all of 2022, the consensus view calls for revenue of $551 billion and profits of about $50 a share.

As Amazon has expanded over time, the company’s financial results have more moving parts. Street estimates call for revenue from the company’s core online stores business of $68.6 billion, up 3% from a year earlier, with third-party-seller services revenue of $31 billion, up 13.6% (that includes things like warehousing, logistics, and delivery services.) Those two elements of the Amazon story are still the heart of the company, and the market clearly seems to be discounting a disappointing holiday season.

But there are other elements to the story that could provide an offset. Amazon Web Services revenue is expected to grow 36% to $17.4 billion—and a strong performance by AWS could deflect some of the concerns about e-commerce softness. Note that both Microsoft (MSFT) and Alphabet ( GOOGL
) reported strong growth for their own cloud-computing businesses in the quarter—Microsoft also projected that growth for its Azure cloud business would accelerate in the March quarter. Meanwhile, subscription services—basically Amazon Prime—are expected to grow 19% to $8.4 billion. Street estimates call for physical stores revenue of $4.4 billion, up 9%.

Also keep a close eye on what Amazon says about advertising revenue. Only recently broken out as a separate segment, the Street is projecting $9.3 billion, which would be up 30% sequentially. Meta’s swoon this morning—the stock has lost a quarter of its value—reflects ongoing concerns about the company’s ad business. But keep in mind that while Meta’s Facebook unit is impacted by Apple
‘s (AAPL) move to bolster privacy on iOS devices, Amazon’s ad business isn’t reliant on the same kind of behavioral signals to discover consumer intent. In other words, Facebook has to figure out that you are hunting for a new laptop—but on Amazon, you actually search for “laptop,” and will see relevant ads as a result. Meta blames its soft ad outlook in part on macro issues—rising inflation and supply-chain shortages. But a strong ad result from Amazon would point to a shifting of ad dollars away from Facebook to Amazon and other platforms less reliant on using consumer behavior for targeting.

Jefferies analyst Brent Thill, who has a Buy rating on Amazon stock, writes in a research note that the setup heading into the quarter is mixed—with a discounted valuation offset by a potential downside in operating income due to elevated labor costs. He sees Amazon as a stock for the 2022 second half, aided by easing comparisons, improved cost visibility, moderating capacity buildouts and continued momentum in the high-margin AWS and ads businesses. 

Write to Eric J. Savitz at [email protected]