Amazon earnings preview: Analysts expect another big quarter for retail and cloud giant

Inside an Amazon fulfillment center in Dupont, Wash. (Photo by GeekWire/ Kevin Lisota)

Amazon will report its fiscal third quarter earnings Thursday afternoon. The pandemic and stay-at-home orders helped Amazon eclipse expectations for revenue and profit in the second quarter as millions rely on the company’s e-commerce engine and cloud computing services. Wall Street estimates revenue of $92.7 billion, up 32% year-over-year, and non-GAAP earnings per share of $7.41, up 75%.

“I’m expecting to see good results from Amazon in its retail and AWS operations,” said Patrick Moorhead of Moor Insights & Strategy. “Consumers are more and more relying on Amazon during the pandemic to deliver goods ‘hands-free,’ reducing the need to go into physical stores, and [Amazon] has improved its ability to stock and ship after hiring hundreds of thousands of new workers.”

Amazon is benefitting from increased online shopping activity, though analysts will be watching the company’s expenses. Amazon said it would spend another $2 billion on COVID-19 initiatives in the third quarter after spending $4 billion in the second quarter. With rising COVID-19 cases across the country, the company’s COVID-19-related costs may continue at similar levels in the holiday quarter.

The company’s stock is up 90% since March, trading at around $3,187 on Thursday. Its market capitalization has risen to $1.6 trillion, right alongside Microsoft. They trail Apple ($2 trillion) for the title of most valuable publicly-traded U.S. company.

Mark Mahaney, an analyst with RBC Capital, is expecting more growth for Amazon Web Services (estimating a 26% bump to $11.3 billion) and Amazon’s advertising arm (estimating 40% growth). RBC’s 12-month stock price target is set at $3,800/share.

In a research note, Mahaney called out the company’s growing delivery network as a key advantage among e-commerce retailers. He estimates that Amazon accounts for 20% of U.S. online sales and expects it to take more market share.

“We believe Amazon’s rapid expansion of its own delivery network provides the company with major service & cost advantages that should shine through, especially this Holiday Season, when we believe Online shopping demand will reach record levels (given the ongoing COVID crisis),” Mahaney wrote.

Though as Amazon invests in faster shipping capabilities, its spending is increasing. Worldwide shipping costs spiked 68% last quarter to $13.6 billion.

Amazon said this week that it would hire another 100,000 seasonal workers this year, bolstering its fulfilment and distribution operations for the fourth quarter. That’s on top of the 175,000 seasonal workers Amazon hired starting in March and April as the first stage of the pandemic confined many people to their homes. The company later converted 125,000 of those jobs into regular, full-time positions.

Separately, Amazon said last month that it was hiring 100,000 full- and part-time operations employees in the U.S. and Canada.

Amazon’s total number of employees and seasonal workers topped 1 million for the first time in the quarter ended June 30. The company will report its latest jobs numbers with its earnings on Thursday.

Amazon has implemented safety measures in warehouses and fulfillment centers to help manage COVID-19 cases. The company said earlier this month that more than 19,000 workers had tested positive or been presumed positive for COVID-19, which it described as lower than the rate of positive cases in the general population.

Fellow tech giant Microsoft beat expectations earlier this week for its September quarter earnings report, thanks in part to its growing cloud arm. Microsoft still trails AWS in cloud infrastructure market share but is gaining ground. AWS had a 45% share at the end of 2019, down from 47.9% in 2018, while Microsoft grew its share from 15.6% to 17.9%, according to Gartner. The overall market grew 37.3% in 2019 to $44.5 billion.

Apple, Facebook, and Alphabet also report quarterly earnings Thursday.

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