Amazon will report its first quarter earnings on Thursday. Here’s what to watch.
Cloud growth: Amazon Web Services has long been a key profit driver but is facing slowing growth amid the broader tech spending slowdown and other inflationary pressures. AWS revenue grew 20% year-over-year in the fourth quarter, compared to 40% growth in the year-ago period. “It is now widely understood and expected that AWS is likely to show significant deceleration in Q2 in particular,” RBC wrote in a report last month.
Layoffs impact: Amazon in January announced a 18,000-person layoff, the largest in the Seattle company’s history, and in March announced an additional 9,000 layoffs. That brought the total to 27,000 job cuts, about 8% of Amazon’s corporate workforce, which previously numbered around 350,000 people.
The headcount reductions “may signal weakness in the core business, with management sending a signal to investors that it can manage expenses in tough times,” Wedbush wrote in an analyst report this week. The firm added: “With that said, Amazon’s workforce is quite large, suggesting that it can weather layoffs with little impact on revenue growth, driving corresponding margin increases throughout all of its business lines.”
Retail margins: RBC said Amazon “is almost unprecedentedly focused” on showing strong earnings in its core retail business “as a demonstration that all the COVID investments around capacity and fulfillment weren’t for naught.” Amazon last year said it added warehouse space faster than it ultimately needed in response to the challenges of the pandemic.
Expectations: $124.5 billion in revenue, up about 7% year-over-year, and earnings per share of $0.21. Amazon’s Q4 guidance set expectations between $121 and $126 billion for Q1 revenue.
