Amazon reports earnings after the bell. Here's what Wall Street is watching

Published Tue, Apr 30 20241:01 PM EDTUpdated Tue, Apr 30 20244:56 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Amazon 's earnings report on Tuesday evening will give investors insight into two of the biggest stories on Wall Street — the resilient U.S. consumer and the artificial intelligence boom. The company that began as an online bookseller is now a tech conglomerate, with Amazon Web Services cloud business being the key profit driver. When Amazon reports its first-quarter earnings, investors will be looking to see how AWS is growing and whether the other businesses are carrying their weight. "We believe investor focus for 1Q24 has broadened into looking at total franchise revenue and operating income vs more narrowly on AWS previously, particularly as growth has rebounded from the 2Q23-3Q23 trough," UBS analyst Stephen Ju said in note Thursday. Wall Street is generally optimistic about Amazon, as more than 90% of analysts have a buy or strong buy rating on the stock, according to LSEG. Analysts are expecting first-quarter earnings of 83 cents per share on revenue of $142.5 billion, according to LSEG. Both numbers represent significant growth year-over-year. Simply meeting expectations may not be enough to push the stock higher, especially considering that shares are already up about 19% year to date. AMZN YTD mountain Shares of Amazon are outperforming the broader market year to date. Here are some areas to watch underneath the headline results. The cloud business The AWS segment accounts for less than one-fifth of Amazon's revenue, but was responsible for about 67% of the company's operating income in 2023, according to its annual report. With breakthroughs in AI raising demand for more computing power, the cloud business could continue its strong growth for years ahead. The AI-focused Amazon Bedrock unit will take on extra importance. "We raise our '24 AWS growth to 15% (from 14%) on an uptick in demand from gen AI workloads and shift away from on-prem IT spending as companies move from optimizations to incremental workloads positions AWS well for potential '24 acceleration (4Q23 POs of $155.7B, $22.7B Q/Q is all-time high). Amazon Bedrock continues integrating foundation model providers and now has seven w/10k+ customers," BMO analyst Brian Pitz said in an April 22 note. Pitz has an outperform rating on the stock. Advertising and retail Another key area of Amazon's business is the advertising on its e-commerce platform. Several other tech companies, including Alphabet , have already reported strong advertising numbers for the first quarter. "We increase our Amazon advertising outlook following the impressive 2H23 performance and encouraging industry checks. We forecast consolidated advertising revenue to [compound annual growth rate] at 20% through 2026 supported by 16% growth from onsite ads and 36% growth on non-core advertising. On a ~55% margin, Advertising [earnings before interest and taxes] moves from $26B in FY23 to $41B in FY26," MoffettNathanson analyst Michael Morton said in an April 22 note. The consumer retail part of Amazon's business has sometimes struggled to turn the heavy demand for online shopping into profits, but that could change in 2024. "From early 2021 through the middle 2023, Amazon's first party (1P) retail business was squeezed on both sides by inflationary pressures. We expect the undoing of these headwinds to be a tailwind to gross margins throughout 2024," Morton said. MoffettNathanson has a buy rating on the stock. Keeping an eye on costs Even if the sales-growth numbers for Amazon are strong, the cost of driving that growth will be key. Concerns around capital expenditures appeared to be part of the reason that Meta Platforms fell sharply after its earnings report last week. "A focus item for us this quarter is the total Capital Expenditures — Amazon has provided directional commentary for anticipated e-commerce segment spend (in-line with business) but has left the same for AWS more open-ended — our projections for 2024 for the former stands at $31.2B (+9% YOY) and the latter $30.6B (+24%)," UBS' Ju wrote in a note to clients. UBS does have a buy rating on the stock. — CNBC's Michael Bloom contributed reporting.