What to look for when Amazon.com (AMZN) reports Q2 results this week

Amazon.com, Inc. (NASDAQ: AMZN) is among the top companies gearing up to report earnings next week as the earnings season picks up momentum. The company had a tough time last year when rising inflation and slowdown in consumer spending dented its earnings. However, things are improving as the management’s efforts to boost margins yield the desired results.   

The e-commerce giant’s stock performed well in the first half of 2023, after entering the year on a high note. It has gained more than 50% since then, outperforming the market. AMZN has always been an investors’ favorite, and it is likely to remain so in the near future. Interestingly, the valuation looks reasonable despite the stock’s strong performance.

Road Ahead

Advertising service, which is a relatively new business for Amazon, is witnessing a marked increase in customer engagement. While the advertising and cloud businesses have strong growth potential going forward, the company’s finances should also get a fillip from reduced cost pressure amid improvements in the supply chain and better labor availability.

“We exited Q4 with a good balance of labor throughout the network and leveraged that throughout Q1, with customer demand patterns remaining more stable compared to Q1 of last year. As labor availability has stabilized and inventories supply-chain challenges have moderated, we were able to implement some significant structural changes to transition our US fulfillment network to a regionalized model. We believe these improvements put us in a good position to improve both delivery speed and our cost-to-serve customers over time,” said Amazon’s CFO Brian Olsavsky at the last earnings call.

Q2 Report Due

Amazon’s second-quarter report is slated for release on August 3 after the close of markets. As far as beating earnings estimates is concerned, the company’s performance has been mixed in recent quarters. Analysts see a significant improvement in bottom line performance this time, compared to the year-ago quarter when the company incurred a loss of 20 cents per share.

The consensus estimate is for earnings of $0.32 per share on revenues of $118.67 billion, which represents a 2% decline from last year. Meanwhile, Amazon’s management predicts second-quarter revenues in the range of $127 billion to $133 billion, the mid-point of which is well above the market’s projection.

Key Numbers

While releasing the previous earnings report in April, the company had also guided June-quarter operating profit between $2 billion and $5.5 billion. In the first quarter, it turned to a net profit of $3.2 billion or $0.31 per share from a loss of $3.8 billion or $0.38 per share last year. There was a 9% increase in revenues to $127.4 billion. Amazon Web Services, the fast-growing cloud business, continues to be a key growth driver. The results topped Wall Street’s expectations.

The stock had a few ups and downs this week but maintained an uptrend all along. It ended Friday’s session up 3%, after trading higher throughout the day.