Ahead of its upcoming earnings report, Evercore ISI analysts have identified three potential value-unlocking factors for Amazon (NASDAQ: AMZN), one of which they refer to as the “A-word.”
The first factor revolves around a rebound in retail margins, as Amazon compares against the significant cost spikes experienced in 2022. The anticipated recovery is expected to be aided by restored capacity utilization and newfound efficiencies resulting from regionalization in Amazon’s retail operations. The Q2 report is likely to provide concrete evidence of this improvement.
The second aspect is related to a potential recovery in retail sales, supported by recent indicative data on retail sales. The analysis of “Shipping Elasticity” also suggests that faster shipping leads to quicker shopping, which could further contribute to the rebound. The Q2 report may present evidence supporting this hypothesis.
The third and most crucial factor is the acceleration of Amazon Web Services (AWS) revenue growth, referred to by analysts as the “A-word.” Investors will be closely monitoring Brian Olsavsky, the CFO, for any indication of this acceleration. Both the firm and the market anticipate a year-over-year AWS revenue growth of 9%-11% in Q2. The key question is whether management hints at AWS experiencing revenue growth acceleration starting from Q3, driven by the optimization cycle, AI workloads, and favorable comparisons. While uncertain at this point, if it materializes, it would be a significant milestone for the company.