Will Amazon's (AMZN) Q4 Earnings Benefit From AWS Momentum?
Amazon’s AMZN fourth-quarter 2022 results, which are scheduled to be released on Feb 2, are likely to reflect gains from its strengthening cloud service offerings.
The cloud computing division, Amazon Web Services (“AWS”), dominates the cloud market on the back of its growing adoption and popularity. This is anticipated to get reflected in the company’s fourth-quarter results.
We note that the solid momentum across AWS has been aiding Amazon in generating high margins from the cloud business. The trend is expected to have continued in the to-be-reported quarter.
AWS revenues were $20.5 billion, accounting for 16% of net sales in third-quarter 2022, rising 27% year over year. We further note that AWS’s operating income improved 10.6% from the year-ago quarter to $5.4 billion.
An expanding customer base and a strong discount offering for long-term deals are likely to have driven AWS’s top line in the quarter under review.
The Zacks Consensus Estimate for fourth-quarter 2022 AWS net sales is pegged at $21.68 billion, indicating an improvement of 21.9% from the year-ago quarter’s reported figure.
Click here to know how the company’s overall fourth-quarter performance is likely to have been.
Amazon.com, Inc. Price and Consensus
Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote
Factors to Note
In the fourth quarter, Amazon expanded the cloud services portfolio by unveiling and making several AWS services generally available.
The company introduced AWS Clean Rooms, AWS Supply Chain, AWS SimSpace Weaver, Amazon Security Lake and Amazon DataZone, to name a few.
Its expanding data center network, and an increasing number of AWS regions and availability zones are likely to have acted as tailwinds.
In the quarter under review, the company launched an infrastructure region in Switzerland, namely, AWS Europe (Zurich). Also, it launched an infrastructure region in Spain, namely AWS Europe (Spain), which marked AWS’s eighth region in Europe.
The company launched its second AWS region in India, which is located in Hyderabad.
Notably, solid portfolio strength and an increasing number of infrastructure regions are likely to have helped AWS sustain its dominance in the cloud market by helping it sustain momentum among existing customers as well as attract new ones.
In the quarter under review, AWS was picked by Brookfield Asset Management, American Family Insurance and Stability AI as the preferred cloud provider. Also, Yahoo and Atos selected AWS as preferred public cloud provider and preferred enterprise cloud provider, respectively.
Descartes Labs and Wallbox went all-in on AWS in the fourth quarter.
Slalom recently extended its global Strategic Collaboration Agreement with AWS. Also, Duke Energy entered a multi-year collaboration with AWS to build new smart grid software and services.
The impacts of the strengthening customer base are likely to have driven AWS's top-line growth in the fourth quarter.
Zacks Rank & Stocks to Consider
Currently, Amazon has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Computer & Technology sector are Agilent Technologies A, Arista Networks ANET and Asure Software ASUR. All three stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Agilent has gained 7.6% in the past year. A’s long-term earnings growth rate is projected at 10%.
Arista Networks has lost 0.4% in the past year. The long-term earnings growth rate for ANET is projected at 17.5%.
Asure Software has gained 45% in the past year. The long-term earnings growth rate for ASUR is projected at 23%.
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