Amazon Q2 FY2022 Earnings Report Preview: What to Look For

Amazon.com Inc. (AMZN) reported robust growth in earnings and revenue in many quarters over the last two years as customers took increasing advantage of the company's online offerings during the early stages of the COVID-19 pandemic. But the company's revenue growth now is decelerating dramatically. The causes include a slowing economy and an overbuilt fulfillment network that's squeezing profits. Also, Amazon is being pressured by high inflation and ongoing legal actions by antitrust regulators.

Investors will be watching to see how these factors have impacted Amazon's performance when the company reports earnings on July 28, 2022 for Q2 FY 2022. Analysts predict a sharp drop in earnings per share (EPS) year-over-year (YOY), coupled with the smallest revenue gains in at least 19 quarters. Note that all EPS data throughout reflects Amazon's 20-for-1 stock split, which took effect in early June.

Investors will also be focusing on revenue generated by Amazon Web Services (AWS), the company's high-margin cloud computing business. AWS still comprises a relatively small share of the company's overall revenue, but it generates a substantial portion of Amazon's operating income. Analysts predict that AWS revenue will grow at a much faster rate than the company's overall revenue, but still at a slowing pace.

Amazon's stock has lagged behind the broader market during the past year. The shares moved largely sideways from July to early September 2021, then peaked in mid-November. The stock then fell from November through the end of January 2022 before being buoyed slightly following Amazon's Q4 FY 2021 earnings release. However, between March and May 2022 the shares fell sharply, and they have only been able to recover a small portion of those declines since. As of July 27, Amazon shares have provided a 1-year trailing total return of -34.7%, below the S&P 500's return of -10.9%.

Amazon Earnings History

Amazon has posted strong EPS growth in recent years, rising 81.7% in FY 2020 and 53.2% in FY 2021. Earnings declined in only two of the last nine quarters. However, Amazon's solid EPS growth sharply reversed course last quarter. The company posted a loss of $0.39 per share for Q1 FY 2022, the first time Amazon has seen a quarterly loss in several years. While analysts don't predict another loss for Q2 FY 2022, they nonetheless expect a drastic decline in EPS.

Amazon's revenue growth has also fallen in recent quarters, though not as dramatically. In Q2 FY 2018, the company reported a 39.3% YOY revenue gain. This slowed to 19.9% for Q2 FY 2019 before increasing again to 40.2% in Q2 FY 2020. Revenue growth climbed as high as 43.8% YOY in Q1 FY 2021, but since that time it has decelerated sharply. It slowed to 27.2% for Q2 FY 2021 and as low as 7.3% YOY by Q1 FY 2022. Analysts estimate that Amazon's revenue growth will continue to slow to a pace of just 5.3% YOY for Q2 FY 2022. This is the smallest quarterly revenue growth the company has experienced in at least four and a half years.

^{Source: Visible Alpha}

The Key Metric

As mentioned above, investors will also focus on revenue generated by AWS, Amazon's cloud-computing platform. AWS offers developers a range of on-demand technology services, such as compute, storage, database, analytics, machine learning, and other services. These services are primarily used by start-ups, enterprises, government agencies, and academic institutions. The company's AWS business generates much higher margins than its e-commerce business. In FY 2021, Amazon's global retail sales- and subscription-based business segments generated about 87.5% of the company's total revenue while AWS accounted for a mere 12.5%. However, AWS accounted for 63.3% of total operating income for the year, making it Amazon's main profit generator.

Amazon's AWS revenue has surged in recent years, with quarterly growth ranging from 28.0% to nearly 50.0% in each of the past 17 quarters. AWS revenue has come close to quadrupling since the start of FY 2018. AWS revenue remained robust during the COVID-19 pandemic as companies with employees working from home still used Amazon's cloud services. Analysts expect that AWS revenue will climb by 31.6% YOY for Q2 FY 2022. That growth represents a marked deceleration since Q4 FY 2021, when revenue rose 39.5%.