What's In Store For Amazon In Q4? Analyst Sees Growing AI-Contribution For AWS

BofA Securities analyst Justin Post has shared insights regarding Amazon.com, Inc. (AMZN) as the company approaches its fourth-quarter earnings report, set to be released on February 6. Maintaining a Buy rating on the stock, Post has set a price prediction of $255.

According to his analysis, Amazon is expected to deliver impressive results this quarter, largely due to effective management of fulfillment operations and workforce efficiency. He projects that the company will achieve $187 billion in sales, which aligns with the market consensus. Furthermore, he anticipates a GAAP operating profit of $19.7 billion, surpassing the average expectation of $18.9 billion from other analysts.

The analyst notes that retail data supports a positive outlook for revenue growth. Additionally, Amazon Web Services (AWS) is predicted to achieve growth rates between 19% and 20%, bolstered by contributions from artificial intelligence, while maintaining a neutral outlook regarding competition from Azure.

Intra-quarter data has been promising. Research from Bloomberg Second Measure indicates stable year-over-year growth, and BAC credit and debit card data shows an increase in online spending, which could contribute positively to Amazon's overall performance.

The current Street estimates suggest an 8% growth in North America retail sales, which is a slight decrease compared to the previous quarter. However, Justin Post believes that recent data indicates either stability or even an acceleration in growth.

Moreover, Post expects North America retail margins to expand by 90 basis points year-over-year, reaching 7.0%, exceeding the consensus estimate of 6.7%. This expansion is expected to stem from increased unit growth leverage and well-managed inventory and shipping processes during the holiday season.

Looking ahead, the analyst has recently updated his revenue estimates for the first quarter, taking into account potential foreign exchange headwinds. He now predicts an estimated impact of 110 basis points, compared to the market’s 40 basis points expectation. Post is envisioning first-quarter sales guidance of between $152.25 billion and $158.25 billion, which indicates a 17% sequential contraction at the midpoint.

In other developments, Amazon is set to close its Go store located in Woodland Hills, California, which will reduce its Go store portfolio significantly, down to only 16 locations across four states since early 2023. This has sparked commentary from retail advisory firm SiteWorks Retail's president, Nick Egelanian, who stated that Amazon appears to struggle with the fundamental aspects of retail.

Price Action: Shares of AMZN saw a 1.78% increase, reaching $241.65 during the last trading session on Tuesday.

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Photo by Sundry Photography via Shutterstock.

Amazon, Earnings, AWS