Amazon (AMZN, Financial) is set to release its third-quarter earnings, drawing attention from analysts at Jefferies who are closely observing the performance of Amazon Web Services (AWS). While AWS's robust growth remains promising, uncertainties loom over retail profit margins. Jefferies projects Amazon's revenue to hit $157 billion, aligning closely with Wall Street's forecast of $157.3 billion.
The firm shows optimism towards Amazon's operating profit, predicting $15 billion, which surpasses Wall Street's $14.7 billion estimate by 2.1%. AWS, being a major profit driver for Amazon, is expected to grow by 20% year-over-year. Such growth could significantly boost quarterly results, contributing approximately 9.5% to the overall operating profit margin, compared to 4.2% last quarter.
Challenges persist in the retail sector, with shifts in consumer goods demand impacting Amazon’s in-house business profits, third-party services, and advertising revenue. Jefferies anticipates that Amazon's fourth-quarter revenue will range between $179.5 billion and $186.5 billion, falling slightly short of Wall Street's expectation of $186.4 billion. Operating profits are expected between $12 billion and $16 billion, contrasting Visible Alpha's $17.4 billion projection.
Jefferies adjusted its profit forecast for the fourth quarter to $16.5 billion, down from $17.4 billion, considering recent wage increases for Amazon's warehouse employees. Analysts warn of potential overestimations by Wall Street regarding Amazon's fourth-quarter guidance based on past trends.
Despite retail margin and guidance concerns, Jefferies maintains a positive outlook on Amazon's medium-term prospects, particularly its exposure to AI-driven cloud demand. The firm highlights AWS's growth and margin opportunities as core reasons for holding Amazon stock. Additionally, a potential normalization in consumer goods demand could accelerate retail margins in the latter half of 2025.
Jefferies rates Amazon stock as a buy, with a target price of $210, against a current stock price of approximately $184.71. Previously, Amazon forecasted Q3 revenue between $154 billion and $158 billion, aiming for a 9.5% growth at the midpoint. However, it remains shy of the anticipated double-digit growth due to revenue and capital expenditure challenges.
