News Amazon Earnings Preview: AWS May Join Azure Reports Slower Growth | Data Center Knowledge

(Bloomberg) — Inc., which had predicted its slowest holiday quarter growth ever, now looks poised to deliver better-than-expected results — thanks in part to a resilient U.S. consumer.

The question is whether a decent Christmas will be enough to offset slowing sales growth in the company’s cloud services unit, which for years has been the main source of Amazon’s profits.

The Seattle-based company is due to report quarterly results on Thursday, with analysts estimating earnings of 17 cents a share for the e-commerce giant, down from 29 cents a share a year ago.

Amazon spooked Wall Street in October after forecasting the weakest fourth-quarter sales growth in its history. Weeks later, the company announced thousands of layoffs, suggesting to some investors that executives were bracing for a possible recession.

Since then, inflation has cooled, the U.S. economy has shown enduring strength, and online shopping continues to grow, albeit more slowly than during the boom years of the pandemic.

“People are preparing for the worst,” said Sucharita Kodali, an e-commerce researcher at Forrester Research. “You have to take a step back and realize that retail spending is at a high.”

Investors, in turn, have grown more bullish on the company, driving the stock up about 22% this year — though that partly reflects the stock’s battering last year, which now represents a buying opportunity.

Bloomberg’s second metric, which tracks credit and debit card transactions, estimates that Amazon’s U.S. retail sales in the final three months of 2022 rose 9.3% from the previous year. Amazon forecast revenue growth of 2% to 8%, which includes international units, commercial purchases and cloud computing sales, which is not included in Bloomberg’s second metric. The U.S. accounts for about two-thirds of the company’s revenue.

Amazon’s healthier sales don’t necessarily translate into fatter profits. The company’s operating expenses have grown faster than sales for more than a year.

After rapid growth in the pandemic era, Amazon is trying to slim down. The company has slowed the opening of new warehouses, abandoned some facilities and recently sold a Bay Area office building that it expects to convert into a logistics facility. Last month, Amazon began a new round of layoffs that will eventually bring the total to 18,000.

Amazon has not disclosed the financial impact of the layoffs, whether in terms of severance packages or future salary savings. Analysts at Oppenheimer & Co. estimate that taking those wages off the books will save Amazon $2.1 billion this year and $3.3 billion by 2024.

The health of AWS, the market leader in selling leased computing power and data storage, is a question mark as some large enterprise customers reevaluate their technology spending. Just as consumers shopped more online during the Covid-19 outbreak, businesses stepped up purchases of on-demand computing power from AWS and others to enable remote work and meet growing demand for digital products like video streaming . That growth has slowed, and some companies are now coming to AWS for help cutting their bills.

Microsoft Corp., Amazon’s closest rival in cloud services, shocked investors last week by predicting slower growth in its own cloud business.

Analysts expect AWS sales to grow 22% in the fourth quarter, to $21.7 billion, and slow to remain near 20% through 2023.

“Is this temporary, a few quarters of austerity, or is it a structural recession?” said Stefan Slowinski, an analyst at BNP Paribas Exane. Slovenski, who has an “underperform” rating on Amazon stock, is the only analyst tracked by Bloomberg with the equivalent of a sell rating on the stock.

AWS often generates more operating income than the rest of the company combined. But UBS analyst Lloyd Walmsley said analysts and investors will also analyze Amazon’s guidance for signs of improving retail margins. “Investors want reassurance that savings won’t be wasted elsewhere,” he said.

Overall, analysts expect Amazon to post sales of $145.8 billion in the three months ended Dec. 31, up 6% from a year earlier. Net income is expected to be $1.98 billion, down 60%.

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