Amazon Q4 Earnings Preview: Will AMZN Stock Scale New Highs?

We are now entering the busiest week of this earnings season, as almost a fifth of S&P 500 Index ($SPX) companies - including trillion-dollar heavyweights like Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Meta Platforms (META) - will step into the earnings confessional.

Amazon was the second-best performing FAANG stock of 2023, with its gains of 81% coming second only to Meta. The stock has continued its uptrend in 2024, and hit 52-week highs last Friday. Here’s what markets expect from the ecommerce giant’s upcoming Q4 earnings, and a look at whether AMZN stock can hit new highs after the earnings report.

Amazon Q4 Earnings Preview

Analysts expect Amazon’s revenues to rise 11.4% YoY in Q4 and hit a record high of $166.2 billion. Consensus estimates call for a similar pace of expansion in the upcoming quarters, and analysts expect Amazon’s 2024 revenues to rise 11.5% overall, which is only marginally higher than the expected 2023 growth.

During their Q3 earnings call, Amazon provided Q4 revenue guidance of $160 billion to $167 billion. The guidance was below what the Street expected at the time, even as the company’s Q3 revenues were ahead of its own guidance, as well as consensus estimates.

Analysts expect Amazon to post per-share earnings of $0.81 in Q4, which is 285% higher than the corresponding quarter last year. Notably, Amazon posted record net profits in Q3, and the metric almost hit a milestone of $10 billion.

The company’s Q3 operating margin of 7.8% was the highest since early 2021. Amazon has undertaken several cost-cutting initiatives that have helped to improve its profits, despite slowing revenue growth.

Here's What to Watch in Amazon’s Q4 Earnings Call

Apart from the headline metrics, markets will be watching for several other key points in Amazon’s upcoming earnings call. These include:

• Consumer sentiment: During their Q3 earnings call, Amazon said consumers are trading down amid still-high inflation and a challenging macro environment. During the Q4 earnings call, I would watch for Amazon’s commentary on the health of U.S. consumers, including around holiday shopping.
• Business spending: The top-line growth of Amazon’s enterprise-focused Amazon Web Services (AWS) has been gradually falling, and YoY revenue growth slipped to an all-time low of 12% in Q3. While the segment’s growth is “stabilizing,” as Amazon has stressed multiple times, it will be crucial to watch for commentary on the business spending environment in 2024 - especially as the macro environment has only deteriorated since Amazon last reported its earnings.
• Cost cuts and operating margins: Despite the slowdown in sales growth, most U.S. tech companies (including Amazon) reported strong profit growth last year, thanks to aggressive cost cuts. During the Q4 earnings call, Amazon might talk about its plans to expand its margins further through new cost cuts.
• New AI initiatives: As I noted previously, Amazon is among the underappreciated artificial intelligence (AI) plays. During the Q4 earnings call, Amazon might provide color on any new AI initiatives that the company is contemplating to improve customer experience and productivity.

AMZN Stock Forecast Is Bullish Ahead of Earnings

Analysts are bullish on Amazon stock ahead of the earnings report, and last week, Jefferies raised its target price from $175 to $190. Bank of America, which listed Amazon as a top pick for 2024, also believes that with reasonable valuations, Amazon shares are “well positioned” for 2024. Incidentally, multiple other brokerages - including JPMorgan, Piper Sandler, Evercore ISI, Citi, TD Cowen, and Bernstein - have listed Amazon as a top 2024 pick.

Looking at the consolidated ratings, Amazon has a “Strong Buy” from 41 of the 45 analysts covering the stock - which makes it the best-rated FAANG stock. Three analysts rate it as a “Buy,” while 1 analyst rates it a “Hold.” The stock’s mean target price of $182.37 is 14.5% higher than last week’s closing prices.

Can Amazon Stock Hit New Highs After Earnings?

Amazon stock closed with gains after releasing earnings for the last three consecutive quarters. While past performance is no indicator of future returns, I believe somber expectations for Q4 results set the stage for a post-earnings rise, given the low bar that markets have set for the earnings. Also, with Amazon shares still below their 2021 highs, I believe this is one FAANG stock worth buying for long-term investors.