Amazon's Profitability Will Hinge On Its Cloud Business, AWS - One Analyst Gives Us An Optimistic View

BofA Securities analyst Justin Post reiterated a Buy rating on the shares of Amazon.Com Inc AMZN with a price target of $174.00.

Amazon is slated to report its third-quarter FY23 earnings on October 26.

The analyst expects Q3 revenue and profit to be slightly above the street view at $142 billion and $8 billion, respectively, versus the consensus of $141.6 billion and $7.7 billion, respectively.

The analyst writes that AWS revenue growth is the top Q3 metric, as 3P data sources suggested deceleration in the quarter despite constructive management commentary.

Q3 beat is possible as BAC aggregated credit and debit card data indicates online spending was up 1% y/y in Q3, a 2-point acceleration q/q, noted the analyst. Ad spending checks also seem constructive.

For Q4, Big Deal Days data points seem strong, and the holiday hiring (+250k) signaled still strong demand. 

The analyst expects Q4 revenue to be at $169.3 billion versus the $166.5 billion consensus and sees ongoing logistics optimization to drive Q4 q/q NA retail margin improvement.

The analyst says a Q3 beat on margins could help Q4 guidance sentiment and noted that Amazon beat the midpoint of profit guidance by $2.7 billion in Q1 and $3.9 billion in Q2 as the logistics efficiency cycle has gained traction.

The two tenets for bulls on Amazon stock in 2024 are AWS acceleration to high teens and NA retail margin improvement to about 5%, quipped the analyst.

An easing optimization cycle and incremental AI demand could boost AWS further in Q1 FY24, writes the analyst.

Price Action: AMZN shares are trading higher by 0.68% at $126.03 on the last check Monday.