Amazon's Massive Growth Story is About to Be Showcased Once Again'

Amazon.com Inc. is anticipated to conclude its robust year of earnings improvement with remarkable growth in the holiday quarter. Analysts forecast earnings of 80 cents per share for the December quarter, representing an astonishing surge of over 2,500% from the 3 cents per share recorded in the same period the previous year.

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The quarterly operating income is projected to climb by 280% to reach $10.4 billion. This positive trend is mirrored in the full-year earnings per share (EPS) growth, which is expected to show a substantial positive swing to $2.70, a significant improvement from the loss of 27 cents per share in 2022.

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Several factors contribute to this earnings improvement, including job cuts implemented by Amazon. Similar to its Big Tech counterparts Meta Platforms Inc. and Alphabet Inc., Amazon had expanded its workforce during the pandemic and underwent substantial staff reductions roughly a year ago. Recent layoffs indicate Amazon's commitment to 'Harvest Mode,' emphasizing cost structure optimization, according to Jefferies analyst Brent Thill.

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However, beyond job cuts, investors and analysts are eager to see signs of sustainable progress in profit drivers that will have a lasting impact. One notable aspect of Amazon's recent strategy is the focus on enhancing the efficiency of its retail fulfillment network. Analysts are optimistic about the profit potential of this business, anticipating continued margin expansion in North America retail due to ongoing reductions in fulfillment and shipping costs.

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Evercore ISI analyst Mark Mahaney expects robust support for North America retail margin expansion, driven by recovery in capacity utilization and the scaling up of regionalized fulfillment and shipping operations. BofA Securities analyst Justin Post anticipates fourth-quarter retail margins to be around 3.8%, with a slight sequential contraction but a year-over-year increase of 4 points. Post envisions a best-case scenario for the quarter involving a retail revenue and margin beat, along with in-line Amazon Web Services (AWS) cloud-computing revenues. He also suggests that management commentary may indicate AWS acceleration in the first quarter, with further potential for margin improvement.

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Amazon's advertising business is another significant factor contributing to margin growth. The company's increased emphasis on ads within its Prime Video business is seen as a positive development, and analysts expect ads to play a substantial role in the narrative for 2024. MoffettNathanson analyst Michael Morton highlighted Amazon's monetization strategy for Prime Video as a crucial factor contributing to profitability upside in 2024.

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While margin progress is a standout factor, Piper Sandler analyst Thomas Champion notes that investor interest remains high in Amazon Web Services (AWS). Approximately 70% of investor questions he receives revolve around the cloud. Champion emphasizes that AWS growth of around 13% year-over-year will be a crucial determinant for the stock's outcome. The upcoming earnings report is eagerly anticipated to provide insights into the overall health and performance of Amazon across its various business segments.

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