Amazon Q3 Preview: Analyst Expects AWS Growth To Outperform, Drive Upside

Amazon.com Inc (NASDAQ:AMZN) is likely to report third-quarter results broadly in line with Street expectations, according to Bank of America Securities analyst Justin Post.

The Amazon.com Analyst: Post maintained a Buy rating and price target of $320.

The Amazon Thesis: Post expects the company’s AWS segment to drive upside to the estimates.

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On Thursday, Oct. 29, Post expects Amazon to report:

• Revenue of $202 billion, versus a consensus of $202.2 billion
• EBIT of $26.4 billion, versus consensus of $26.1 billion

AWS: The AWS segment is likely to grow revenue 40% year-on-year, surpassing Street expectations of 38%, he added.

While Wall Street projects AWS margins of 34.7%, Post expects higher margins of 39%. Key catalysts include strong backlog growth and expanding adoption of custom silicon and Bedrock, he noted.

Post credits estimates upside to:

• New capacity
• Year-to-date price hikes
• Ramp of AI Lab contracts
• Growing enterprise inference demand

Retail: "We expect meet/beat sales as BAC aggregated credit & debit card data indicated Online spend decelerated 4ppts q/q to 9% y/y, which is 6ppts better than Street ests. for N.A.," the analyst wrote.

While Prime Day’s timing temporarily slowed ad growth to 15%, acceleration is expected in the fourth quarter, he added.

Outlook: October Big Deal Days grew 8.5%, and Amazon.com is boosting holiday hiring by 20%, Post said.

Revenue guidance is expected at $239-$246 billion, or $242.5 billion at the midpoint, with operating profit of $29-$34 billion, the analyst stated. Higher gas prices pose a margin risk for North American retail, but accelerating AWS growth could create profit upside, he further noted.

AMZN Price Action: Amazon.com shares rose 0.86% to $250.14 at the time of publication on Monday.

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