|AMZN reports after the close.|
Amazon Reports Earnings Thursday. Expect Cloud and Ad Strength, But E-tailing Challenges.
By Eric J. Savitz
April 28, 2022 4:15 am ET
Amazon ’s first-quarter results will provide investors with fresh insights on the challenges to the e-commerce sector created by a messy macroeconomic landscape that features rising inflation, soaring fuel and labor costs, the war in Ukraine, and the lingering Covid-19 pandemic.
But those factors will be at least partially offset by continued strength in the Amazon Web Services cloud business, and further growth in the company’s fast-growing advertising operations.
For the quarter, which is due after the close of trading on Thursday, Amazon.com (ticker: AMZN) has projected sales of $112 billion to $117 billion, up between 3% and 8%. The Wall Street consensus as measured by FactSet calls for revenue of $116.5 million and earnings of $8.35 a share.
Amazon expects operating income for the quarter of between $3 billion and $6 billion; the company doesn’t provide EPS guidance. Amazon last quarter warned that unfavorable foreign exchange rates could reduce March quarter growth by 1.5 percentage points, and there is some risk the actual impact could be higher than that, based on recent results from other technology players.
For the quarter, the Street is projecting revenue from Amazon Web Services of $18.3 billion, which would be up 36% from a year ago. Note that both Microsoft and Alphabet in reporting March quarter results posted better-than-expected growth from their own cloud businesses.
The Street projects online stores revenue of $51.9 billion, down about $1 billion from a year ago, with third-party seller services revenue of $24.6 billion, up from $23.7 billion a year earlier. Street estimates call for ad revenue of $8.2 billion, up 34%, with subscription services revenue of $8.6 billion, up 13%.
Results could be a little messy. Note that Amazon last quarter announced an increase in the annual membership fee for Amazon Prime. That increase—the first since 2018—went into effect Feb. 18 for new members, with the new rate kicking in for existing members starting March 25 on a rolling basis as they hit their renewal dates. Amazon recently announced a 5% fuel and inflation surcharge for third-party sellers, but that only kicked in this week. Unfavorable exchange rates, higher fuel costs, increasing labor rates, spiking interest rates, ongoing product shortages and economic uncertainty in Europe tied to the Russian invasion of Ukraine all pose challenges.
BofA Global Research analyst Justin Post last week trimmed his forecast for the first quarter to reflect lower international revenue growth, and he reduced his outlook for the second quarter in part to adjust for an anticipated shift of the company’s annual Prime Day sales event into the third quarter, from the second quarter. He also sees an impact from both foreign exchange and higher gas costs, and notes that a 20% year-over-year increase in gas prices could drive $2.5 billion higher annual expense.
Post nonetheless remains an Amazon bull. “Inflation clouds the 2022 margin recovery story, but Amazon remains our top FANG stock,” pointing to an expected second-half acceleration in e-commerce revenue, improving margins off a very low base, and enterprise exposure in AWS.
Evercore ISI analyst Mark Mahaney thinks first-quarter estimates look reasonable, but he cautions that the Street might be too bullish on the second quarter. He notes that the consensus calls for 7.7% sequential growth from the March quarter, above the 4% to 6% growth in the last four non-Covid years. And Mahaney also sees risks from the strong currency headwinds, inflation, supply chain constraints and potential softening in European and global consumer demand. Mahaney nonetheless keeps his Outperform rating on the stock.
For the June quarter, Street consensus estimates call for sales of $125.4 billion (which by the way would put the company on a $500 billion run rate) with profits of $10.66 a share, and operating income of $6.8 billion.
Amazon Reports Earnings Thursday. Here's What to Expect. | Barron's (barrons.com)