Amazon Earnings Preview: Recession Fears May Lead to Cuts to Amazon’s Cloud Computing Services

With recession fears looming, Amazon.com’s cloud services business could come under pressure, Mizuho Securities analysts warned in a note heading into the tech giant’s second-quarter earnings announcement scheduled for Thursday.

Mizuho analysts recently took a call with IT service companies and found that CIOs expect a “shallow stagnation scenario” and will reduce their spending by about 10 points in fiscal year 2023.

“To mitigate any weakness in demand, major cloud vendors such as Oracle and NetSuite have begun offering meaningful discounts to gain market share,” Mizuho wrote in a recent note.

“At the same time, our checks indicate that AWS is considering a discount of up to 10% in September/October for new contracts/renewals when IT budgets are set for
fiscal year 23.”

Mizuho Amazon AMZN Prices,
-1.05%
Buy the stock at a target price of $155.

Amazon completed a 20-for-1 stock split in June.

We see: Big Tech earnings are about to set the trend of the market

Despite the attractive valuation, we believe the stock lacks due short-term catalysts
into a potential downward revision cycle.”

MKM Partners is also expecting price cuts for cloud services, but analysts there say the slowdown in the AWS business will happen sooner rather than later.

The analysts wrote in: “We view social media and streaming engagement trends as a revenue headwind for AWS’ usage-based pricing model (Netflix, Snap, Spotify, Pinterest, and Meta, among the top 20 AWS customers, in our opinion) Memo published on Monday.

“In addition, flexibility in venture capital funding for startups is likely to find its way into AWS softness in the second half of 2022 (we estimate that tech startups make up 10% of AWS revenue).”

MKM Partners measures the purchase of Amazon shares with a target price of $165, down from $180.

Amazon has an average buy rating and average price target of $167.80, according to 51 groups of analysts surveyed by FactSet.

Here are some things to know about Amazon in preparation for the earnings announcement:

gains: FactSet agrees to earnings per share of 12 cents per share, down from 76 cents last year.

Estise, which compiles estimates from buy-side and sell-side analysts, hedge fund managers, executives, academics and others, forecasts 21 cents of earnings per share.

Amazon missed the FactSet EPS consensus last quarter.

also: Amazon looks to cut costs after first loss in seven years lower inventory

he won: FactSet’s consensus is on revenue of $118.98 billion, up from $113.08 billion last year.

Estimated expected revenue $119.97 billion.

Amazon reported revenue in line with the FactSet consensus last quarter.

Share price: Amazon shares are down 34% over the past year, and are down 17.4% in the past three months.

S&P 500 benchmark SPX,
+ 0.13%
It’s down about 8% over the past three months.

Other items:

Prime Day will give Amazon a boost in the third quarter and may even set the stage for another shopping event. Amazon Prime Day took place on July 12 and July 13, which is too late for the second quarter, but analysts say it will be beneficial for the third.

“[W]I think Prime Day sales were better than expected while spending on ads
“Amazon has stayed above the industry trend line,” MKM said.

“We estimate that Prime Days generated approximately $3.25 billion in incremental sales in the third quarter, and ~$6.0 billion to $6.5 billion in total merchandise sales.”

JMP believes the contribution is approximately $3.85 billion in net sales, and expects a repeat shopping holiday this year.

“Overall, we view Prime Day performance positively and likely give Amazon consumer confidence in a resilient consumer for a potential second major day in Q4 of 22,” JMP wrote in a note.

Amazon has made a number of important announcements in recent months. Amazon could provide an update on any number of announcements it has made in recent weeks, including its expanded drone service in Texas, and the launch of Rivian Automotive Inc. RIVN,
-0.95%
EVs for last-stage delivery, and Amazon’s $3.9 billion acquisition of One Medical.

And the: Rivian shares soar as Amazon starts using the EV maker’s electric delivery trucks

do not miss: How Amazon’s $3.9 Billion Bet on Primary Care Could Change Your Prime . Membership

Despite the challenges of trying to succeed in the complex healthcare industry, GlobalData was optimistic about the acquisition.

“The acquisition of One Medical gives Amazon a powerful platform on which it can develop new health offerings and test ideas,” GlobalData said following the acquisition announcement.

“It also gives them great, but not overwhelming, business that they can integrate into the broader healthcare offering.”

George Congdon of Third Bridge described the deal as “a seamless fit with the company’s employer-focused telemedicine offering Amazon Care and their Amazon Pharmacy business.”

Read: Amazon’s acquisition of One Medical sparks a backlash over data privacy: “What can go wrong?”

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