What Makes Amazon Attractive Ahead of Q1 Earnings?

Seattle-based Amazon.com, Inc. AMZN, with a market capitalization of more than $1.8 trillion, is one of the most valuable companies worldwide. Amazon is the frontrunner in the e-commerce and cloud computing space. Jeff Bezos' company has also ventured into AI to propel its growth and boasts a prospering advertising business.

AMZN shares at first pulled back during the 2020 bear market, but since then, it has gained traction as consumers prefer shopping online. Amazon's shares scaled upward by 19.1% in the first three months of 2024, exceeding the Internet-Commerce industry's gain of 10.2%.

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Amazon extended its winning streak and hit an all-time closing high of 189.05 on Apr 11. However, its shares are now trading in a narrow range and have notched gains in two of the last 10 trading sessions since then. So, is there more upside left for this e-commerce behemoth? The consensus among market pundits is that Amazon's stock will keep gaining in the near term, banking on solid first-quarter earnings results, slated to be released on Apr 30, after market close.

Amazon is projected to report earnings per share of 81 cents in the first quarter of 2024, more than 31 cents a year ago, indicating a jump of 161.3%. Amazon is also estimated to register an 11.9% year-over-year revenue increase, to $142.5 billion.

In reality, Amazon has already delivered a trailing four-quarter earnings surprise of 51%, on average, which strengthened investors' expectations of another round of solid profits and revenues. Moreover, Amazon has an Earnings ESP of +7.51%, a tell-tale sign that the company is well-poised to beat in the forthcoming earnings announcement. Needless to say, an improvement in earnings should jack up the share price.

Amazon.com, Inc. Price and EPS Surprise

Amazon.com, Inc. price-eps-surprise | Amazon.com, Inc. Quote

Sustained growth in the advertisement business acts as a boon for Amazon. The company's advertising revenues soared 24% year over year to $47 billion in 2023. And with the company rolling out video ads in its Prime service in January, ad-related revenues will surely get a boost in the first quarter.

What's more, in a recent survey conducted by Wedbush Securities, almost 56% of respondents said that they increased their ad spending on Amazon by nearly 10% year over year in the first quarter and intend to further increase their budget for Amazon ads by the end of 2024.

Revenues from advertising are widely expected to post a healthy 23% growth by the end of the year and are expected to get a lift from the popular show Fallout, which is one of the most-watched programs on Amazon Prime Video.

The generative AI boom across the market, meanwhile, is expected to benefit Amazon's results not only in the first quarter but all through the year. It is likely to increase demand for Amazon Web Services (AWS) as well as the company's Bedrock AI-platform building tool. Bedrock, which helps in making personalized AI tools, is at present used by umpteen customers, and some notable clients are Delta Air Lines, Inc. DAL, Pfizer Inc. PFE and Intuit Inc. INTU.

Amazon's AI push gained momentum after the e-commerce player recently invested $2.75 billion in the AI startup Anthropic known for developing the chatbot Claude. These deals will give Amazon an upper hand against cloud computing rivals Microsoft Corporation MSFT and Alphabet Inc. GOOGL.

Amazon, by the way, has deployed several cost-cutting measures and initiatives to reshape the future of retail business. These encouraging moves will certainly help the company mitigate bottlenecks related to regulatory issues.

Therefore, Amazon in all likelihood is a market darling and its estimated earnings and revenue growth rates for the current year are 42.1% and 11.6%, respectively. Additionally, the Zacks Consensus Estimate for Amazon's current-year earnings has moved up 1.5% over the past 60 days.

Amazon continues to competently generate profits since it has a return on equity of 16.6%, which is typically considered good. Now, the company may have a low net profit margin of nearly 5.3% but it fares well compared to the industry's negative margin of 1.3%, an indication that most of its peers' businesses are unprofitable.

Coming to valuation, Amazon's stock is undeniably pricey. By looking at the Price/Earnings ratio, Amazon presently trades at 43.65 forward earnings. The industry's forward earnings multiple, on the other hand, is 28.05. However, this means market participants believe that the stock can generate more profits in the future, eventually increasing its demand and price as well.

Amazon, rightfully, has a Zacks Rank #2 (Buy).

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