US Stock Earnings Preview:Amazon's Earnings Report Is Coming! The Performance of E-commerce and AWS Is in the Spotlight. What Impact Will Tariffs Have on It?

Amazon is set to release its fourth-quarter earnings later on Thursday.

Previously, Amazon's third-quarter report was quite encouraging: its revenue, profit, and AWS-related metrics in that quarter all exceeded expectations.

In particular, the significant increase in profit quickly reversed the loss situation in 2022, and the investment logic has shifted to being driven by profitability.

Amazon's Fourth-Quarter Earnings and Sales Projections

According to FactSet data, analysts expect Amazon's earnings to increase by 48% to $1.49 per share. Sales are projected to rise by 10% to $187.3 billion.

FactSet predicts that Amazon's operating income for Q4 will reach $19 billion.

Mark Mahaney, an analyst at Evercore ISI, stated in a client note on Sunday that he anticipates Amazon is highly likely to surpass Q4 expectations while bracketing the estimates for its revenue and operating income guidance in the current quarter.

"We view (Wall) Street's Q4 revenue estimate and the Street's operating income estimate (implying a 10.1% margin, compared to 11.0% in Q3) as both reasonable," Mahaney wrote.

So, what should we pay attention to?

Amazon's main business lines include online retail, third-party seller services, AWS, advertising services, Prime membership subscriptions, etc. For investors, the key focuses are e-commerce and services (including third-party advertising and membership subscriptions on the online store) and AWS.

The former is Amazon's primary source of revenue, while the latter is Amazon's main profit source and cash cow, and also the most-concerned segment in the market.

In terms of e-commerce and services, due to the overall strong Q4 retail data in the US and the booming holiday season, it is highly likely that Amazon's revenue from this segment in this quarter will exceed market expectations.

In the last quarter, Amazon's revenue from this segment was $104.5 billion, slightly better than expected, echoing the strong US consumer data in the third quarter.

According to Adobe data, during the 2024 US holiday shopping season (from November 1st to December 31st), online sales reached a record $241.4 billion, an increase of 8.7% year-on-year.

In addition, Mastercard data shows that total sales during the 2024 holiday season increased by 3.8%, with online sales growing by 6.7% and offline sales increasing by 2.9%.

These data all indicate that the fourth quarter is another strong-sales quarter for Amazon.

The AWS cloud business is the most-watched project by the market.

Data shows that in Q3 2024, AWS's market share in the cloud business was 31%, leading Microsoft by 11 percentage points, with the advantage expanding.

Amazon's quarterly report shows that thanks to the surge in demand for AI data centers, AWS's revenue and operating profit margin reached new highs.

I believe that due to Amazon's increased investment in relevant projects, enhanced cooperation with AI companies, and the driving effect of Trump's $500-billion investment plan on data centers and cloud vendors, AWS is likely to experience further acceleration in its subsequent growth, driving up Amazon's overall profit margin and valuation.

However, there is one point we need to be particularly cautious about, and that is tariffs!

If an increase in tariffs leads to a rise in commodity prices, it may cause some price-sensitive consumers to reduce their purchases on the Amazon platform, thus affecting platform traffic.

For some goods that need to pay high tariffs, consumers may turn to other platforms or choose to buy domestic products.

We can listen to whether Amazon's earnings conference call will mention this point.

Overall, the expectations for Amazon's overall earnings report are quite optimistic. In terms of valuation, both its absolute and relative valuation levels are not high. Considering the potential profit growth rate and the fact that it has been in a loss state for most of its history.

The current P/E ratio of 49 is in a reasonable or even low range. Now, the high stock price doesn't seem so strange. As for the target price, I tentatively see it at $270.#amazon $AMZN