Is a dark cloud likely to hang over Amazon earnings?
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After downbeat reports from its big tech peers in Alphabet (GOOG) -8.8% and Microsoft (MSFT) -6.99% on Tuesday evening, Amazon (NASDAQ:AMZN) will be a closely-watched earnings after the bell on Thursday.

Shares of the Seattle-based eCommerce and cloud king fell sharply on Wednesday, largely driven by those aforementioned reports. Indeed, the three were among the deepest decliners in the tech sector on Wednesday, edging lower alongside Meta Platforms (META) -6.23% which is nearing its own earnings announcement.

Wall Street anticipates the Andy Jassy-led giant to report $0.21 in EPS and $127.47B in revenue for the quarter. While the company has beat EPS estimates in 7 of the past 8 quarters, it has only exceeded the bar set for revenue in 50% of reports in the past two years. 

E-Commerce Erosion?

The key revenue driver for the company remains its flagship internet retail operation. While Amazon (AMZN) indicated its business remains resilient as recently as mid-summer, continued inflationary pressure has begun to arouse some concern.

âConsumer spending has softened over recent months, and investors will be looking for further discussion of the macro backdrop and the company's positioning ahead of the holiday season,â Cannacord Genuity advised clients on Sunday. 

While the firm nonetheless thinks âQ3 results will likely be solid, aided in part by a strong Prime Day,â the commentary on trends into year-end will remain pivotal. 

On that point, MKM partners indicated its belief that guidance may be cautious.

âOn 4Q consensus estimates, we believe AMZN will likely err on the side of being more conservative, given the uncertain consumer spend environment,â the firmâs analysts wrote on Monday. âWe believe recently announced wage hike, higher near-term content costs amortization, and potentially greater merchandise discounting might weigh on 4Q Op Margins.â 

The analysis added that the recent Prime day event may prove somewhat disappointing once numbers are outlined, causing the firm to reel in e-commerce estimates. Nonetheless, they remained optimistic on longer term trends in online shopping via Amazon both due to its sticky nature and strong value opposition into a potential recession.

Cloud Concerns

MKM was also optimistic on the staying power of the cloud business that promotes the bulk of profits for the company. 
That said, the Microsoft report that promoted a down day for big tech on Wednesday was largely viewed pessimistically due to weaker-than-expected cloud revenue and a downbeat demand forecast for its Azure segment. This commentary bookended lingering doubts on the durability of cloud demand amid a choppier economic environment.

âSince 2Q earnings on 7/28, AMZN shares have traded down -28% vs the SPX down -5%, as concerns have mounted around slower consumer spending & macro impact on cloud,â JP Morgan analyst Doug Anmuth wrote on Wednesday. 

In the past 90 days, analysts have revised down quarterly EPS expectations 25 times and annual estimates down 36 times, speaking to that cautiousness on bottom line trends that the cloud business undergirds.

âFor AWS estimates, we are in unprecedented times as the business has not operated in a prolonged economic slowdown,â Bank of America analyst Justin Post told clients. âLooking forward to future quarters, we expect some deceleration in AWS revenue growth on lower VC funded start-up spend, transaction/storage volumes, and some push out lift & shift projects, but overall we expect AWS to continue to generate healthy q/q growth in 4Q and y/y growth in 2023.â

Still, both Anmuth and Post, and indeed much of Wall Street. remains very bullish on the stock into earnings despite the concerns. Of the 51 ratings collected by SeekingAlpha in the past 90 days, 49 see the stock as a âBuyâ with 34 of those ratings being âStrong Buy.â The consensus price target stands at $169.30, suggesting significant upside from the trading range for Amazon ahead of earnings.

âMicrosoft (MSFT) Azure growth slowdown in the December quarter could also be reflected at AWS, but we still expect Cloud spend to be resilient given secular shift and prioritization for corporates,â Anmuth said, downplaying doubts on the quarter to be reported. âAlphabetâs (GOOGL) results last night may also raise concerns about heavy spending & headcount, but we believe AMZN is a couple quarters ahead in rightsizing its cost structure post pandemic and therefore closer to benefiting from margin improvement. AMZN remains our Best Idea.â

Read more on why SeekingAlpha contributor Michael Wiggins de Oliveira is bearish on Amazonâs Q3 earnings.