Retail giant Amazon.com Inc. is predicted to experience growth in the fourth quarter following a strong performance in the previous quarter, according to analysis from Benchmark. The company’s success can be attributed to a record-breaking Prime-like event in October, which served as a testament to Amazon’s keen market awareness.

Analyst Daniel L. Kurnos stated in a note to clients that Amazon’s close alignment with market dynamics signifies the potential for further gains in the upcoming holiday shopping period. Kurnos also highlighted the trade-down/promotional-driven atmosphere indicated by evaluations of both e-commerce and advertising sectors. These factors, combined with internal adjustments aimed at optimizing profitability, suggest the likelihood of increased operational margins.

While Kurnos anticipates continued momentum in Amazon’s third-quarter earnings report, he acknowledges one potential hurdle. Despite consensus projecting growth in online stores through 2024 and significant margin expansion, the economic challenges faced outside the U.S. and a more subdued growth outlook for Amazon Web Services (AWS) may present obstacles. Additionally, Kurnos mentions the ongoing antitrust suit filed by the Federal Trade Commission against Amazon in September as another factor impacting future performance. However, he remains optimistic about AWS potentially outperforming due to the medium-term craze surrounding artificial intelligence.

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Holiday Season Forecasts and Consumer Outlook

Introduction

Forecasts for the upcoming holiday season and the state of the consumer are generating mixed opinions. Recent studies conducted by Deloitte and eMarketer, with one sponsored by Amazon Pay, predict a return to double-digit growth and more normalized spending patterns. Despite price inflation and economic concerns, the forecasts remain optimistic.

Resumption of Student Loan Payments

Deloitte refers to the resumption of student loan payments as a “de minimis lump of coal,” indicating its potential impact on consumer spending.

Varying Perspectives

In contrast, a Klaviyo/Qualtrics study published in early August presents a more negative outlook, aligning with broader sentiment by calling for a reduction in gifting this year. However, three consistent themes emerge from these studies:

  1. Increased preference for e-commerce over in-store shopping.
  2. Greater focus on basic and lower value goods for spending.
  3. A potential shift in spending from experiences back to goods.

Revenue Expectations

Benchmark predicts that Amazon will achieve third-quarter revenue of $141.442 billion, slightly below the current FactSet consensus of $141.512. Nevertheless, their forecast for per-share earnings of $1.06 surpasses the FactSet consensus of 58 cents.

Fourth-Quarter Guidance

The fourth-quarter guidance will play a significant role, where Benchmark’s forecast exceeds consensus expectations by $500 million, despite being nearly $1 billion below the street in their online stores forecast. This strong guidance suggests potential outperformance, particularly due to another record-breaking holiday kickoff event. If other segment projections prove accurate, it could result in revenue guidance outperformance.

Stock Performance

Amazon’s stock has gained an impressive 53% year-to-date, surpassing the 12% gain of the S&P 500 SPX.

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