Amazon Q1 Earnings: 12% Growth, AWS, and Ad Surge

Key Takeaway

• Amazon's Q1 earnings are expected to show a 12% revenue growth to $142.5 billion, with AWS and advertising sectors as key drivers.
• AWS projected to grow by 12%, while advertising revenue is anticipated to surge over 23% year-over-year.
• Speculation about Amazon announcing its first-ever dividend, buoyed by a strong cash position and positive market sentiment.

Earnings Expectations Set High

Amazon is poised to unveil its first-quarter earnings, with Wall Street setting the bar high. Analysts, according to LSEG, anticipate earnings per share (EPS) of 83 cents on revenue of $142.5 billion. This forecast aligns with expectations for Amazon Web Services (AWS) to bring in $24.5 billion and the advertising sector to contribute $11.7 billion in revenue. The projected 12% revenue growth signifies a continuation of Amazon's steady performance, marking the fourth consecutive quarter of low double-digit expansion. Operating income is also expected to see a significant rise, with predictions of $11.2 billion, showcasing over 130% growth from the previous year, attributed to cost-cutting measures and operational efficiencies under CEO Andy Jassy's leadership.

Focus on AWS and Advertising

Amazon's AWS and advertising segments are under the microscope, with AWS expected to report a 12% increase in revenue. This slight deceleration from the previous quarter's 13% growth still represents a notable improvement from the first quarter of 2023's 9% expansion. The demand for generative artificial intelligence (AI) technology is anticipated to bolster AWS's performance. Meanwhile, the advertising sector is projected to see over 23% year-over-year growth to $11.7 billion, with digital ad counterparts like Meta, Google, and Snap already surpassing expectations. Wedbush analysts predict strong growth in Amazon's ad business, supported by the expansion of off-platform advertising and the monetization of Prime Video ads, among other factors.

Investor Sentiment on AI Spending

Amazon's earnings report is viewed as a critical indicator of investor sentiment towards AI investment. Following a mixed reaction to tech giants' AI spending, with Meta experiencing a significant selloff and Alphabet and Microsoft easing concerns, all eyes are on Amazon's AI initiatives within its AWS segment. The company's heavy investment in generative AI cloud services, aimed at generating substantial future revenue, is particularly scrutinized. The clarity of Amazon's future outlook, especially in light of Meta's recent slump due to vague projections, is deemed crucial amidst expectations of sustained higher interest rates.

Potential Dividend Announcement

Speculation is rife about Amazon possibly announcing its first-ever dividend, following in the footsteps of its tech peers like Alphabet, which recently issued its first dividend alongside quarterly results. With Amazon ending 2023 with $73.4 billion in cash and equivalents, and no analyst sell recommendations, the anticipation of a dividend announcement or an expansion of its buyback program is high. This potential move could significantly impact investor sentiment, especially considering Amazon's strong performance and dominant market position.

Street Views

• Wedbush Analysts (Bullish on Amazon):

  "We think the opportunity for Amazon is still early and expect multiyear growth above the broader digital ad market, supported by continued expansion of off-platform advertising opportunities, ongoing monetization of Prime Video ads, emerging demand from non-endemic advertisers, and core on-platform sponsored product growth supported by the secular transition to e-commerce."

Management Quotes

• Andy Jassy, CEO of Amazon:

  "Executives said in February they expect increasing demand for generative artificial intelligence technology to give AWS a boost."