Amazon's Q4 Outlook: Strong Growth and AI Contributions Expected

BofA Securities analyst Justin Post has provided insights on Amazon.com, Inc. (AMZN) ahead of its anticipated fourth-quarter results, which will be announced on February 6. The analyst holds a Buy rating on the stock with a price target of $255.

Post predicts that Amazon will achieve robust financial results, aided by efficient fulfillment processes and leverage from its workforce. He projects total sales of $187 billion, which aligns with the market consensus, while estimating a GAAP operating profit of $19.7 billion, surpassing the average estimate of $18.9 billion.

Data supporting retail revenue growth is encouraging, and post indicates that Amazon Web Services (AWS) is expected to deliver growth between 19% and 20%, driven in part by advancements in artificial intelligence. He notes a neutral read-across concerning Azure’s performance in this context.

Intra-quarter data presents a positive outlook, with findings from Bloomberg Second Measure reflecting stable year-over-year growth. Additionally, BAC credit and debit card data indicates that online spending is gaining momentum.

The market forecasts an 8% increase in North American retail sales, marking a slight slowdown relative to the third quarter. However, the indicators suggest that stability or even acceleration in sales growth may be on the horizon, according to the analyst's observations.

Post anticipates a 90 basis points year-over-year expansion in North America Retail margins to reach 7.0%, which is higher than the consensus projection of 6.7%. This growth is expected to stem from enhanced unit growth and effective management of holiday inventory and shipping.

Additionally, the analyst recently adjusted his revenue estimates for the first quarter, considering the potential for increased foreign exchange headwinds. He expects a 110 basis points impact, which is significantly higher than the 40 basis points estimate by the Street. The anticipated sales guidance for the first quarter ranges from $152.25 billion to $158.25 billion, indicating a midpoint contraction of 17% sequentially.

Meanwhile, Amazon is set to close its Go store in Woodland Hills, California, this month, which will result in a reduction of approximately half of its Go store locations since early 2023, leaving a total of 16 stores across four states, as reported by the Wall Street Journal.

The company's downsizing of its convenience store operations has prompted industry commentary. Nick Egelanian, president of the retail advisory firm SiteWorks Retail, remarked that Amazon appears to struggle with the fundamental principles of retail, shedding light on potential strategic challenges.

As of the latest reports, AMZN shares have risen by 1.78%, trading at $241.65.

For investors looking to gain deeper insights into earnings trends ahead of market shifts, this analysis provides valuable context.

Amazon, Earnings, Growth