Here’s What to Watch When Amazon Reports Its Q3 2024 Earnings

TradingKey - Cloud computing and retail are big businesses. They are also the two businesses where Amazon.com Inc (NASDAQ: AMZN) is the undisputed leader. Both its online retail business – Amazon.com – and its cloud computing unit (Amazon Web Services, known as “AWS”) are huge in scale.

Indeed, Amazon’s online retail business is the world’s largest and AWS is the world’s biggest cloud computing business, ahead of rivals like Microsoft Azure and Google Cloud.

The company’s results are also a useful indicator of the health of the US consumer and how robust corporate technology spending is. Thankfully for investors, Amazon is set to report its latest Q3 2024 results on Thursday (31 October) after the market closes.

For those of us interested in technology stocks and retail, here’s what they should be watching as the Amazon behemoth releases its earnings.

Cloud computing momentum

Similar to all the Big Tech companies with cloud businesses, investors will be closely watching how AWS fares. That’s also because the business is Amazon’s profit engine, given its incredibly high operating profit margin.

For example, in Q2 2024, AWS reported operating income of US$9.3 billion, up from US$5.4 billion in Q2 2023. That number was also 63% of Amazon’s overall operating income of US$14.7 billion for Q2 2024, highlighting how much AWS contributes to the business’s overall profitability.

During Q2 2024, AWS saw its sales increase 19% year-on-year to US$26.3 billion, coming in slightly ahead of expectations. Investors will be keen to see how strong growth is again for Q3 2024 and whether it can maintain its dominant lead against its rivals, notably second-placed Microsoft Azure. 

There’ll also be a focus on the level of capital expenditure (capex) spending from AWS and whether a return on investment (ROI) will be seen in the near future.

Retail and advertising on the agenda

Amazon’s retail business is one of the most visible to everyday consumers. Its online stores sales only rose 5% year-on-year in Q2 2024 but it did say its revenue from third-party seller services rose 12% year-on-year during the period.

Amazon CFO Brian Olsavsky stated that consumers, particularly in the US, were choosing to buy cheaper products – resulting in a lower average selling price (ASP). Investors will be watching closely whether this trend continues in Q3 2024.

Meanwhile, Amazon’s thriving advertising business continued to show strong growth in Q2 2024, racking up 20% year-on-year revenue growth to US$12.77 billion. That unit has become another key profit centre for the company as advertisers utilise Amazon.com’s page real estate to place ads in front of buyers.

As a sign of its success, Amazon’s advertising business is now starting to rival Meta Platforms Inc (NASDAQ: META) and Alphabet Holdings Inc’s (NASDAQ: GOOGL) Google in terms of growing its market share in the digital ad segment. Investors will be keen to see further market share gains and strong growth from Amazon’s ad business when Q3 2024 results come out.

In terms of guidance from Amazon’s management, in the last earnings call they were projecting revenue of between US$154 billion and US$158.5 billion for Q3 2024, representing year-on-year growth of between 8% and 11%. That came in slightly below analyst estimates and was one reason why Amazon shares slid as much as 6% immediately after its Q2 2024 earnings.

However, Amazon shares have since recovered. So far in 2024, Amazon stock is up 25.7% and is ahead of the S&P 500 Index’s gain of 22.8% over the same period.