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Will Solid AWS Momentum Aid Amazon's (AMZN) Q3 Earnings?

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Amazon’s (AMZN - Free Report) third-quarter 2021 results, which are scheduled to be released on Oct 28, are likely to reflect gains from its strengthening cloud service offerings.

The cloud computing division Amazon Web Services (“AWS”) dominates the cloud market on the back of its growing adoption and popularity. This is anticipated to get reflected in the company’s third-quarter results.

We note that the solid momentum across AWS has been aiding Amazon in generating high margins from the cloud business. The trend is expected to have continued in the to-be-reported quarter.

AWS revenues were $14.8 billion, accounting for 13% of net sales in second-quarter 2021, rising 37% year over year. We further note that AWS’s operating income improved 24.9% from the year-ago quarter to $4.2 billion.

We believe that an expanding customer base and a strong discount offering for long-term deals are likely to have driven the AWS top line in the quarter under review.

The Zacks Consensus Estimate for third-quarter 2021 AWS net sales is pegged at $15.5 billion, indicating an improvement of 33.7% from the year-ago quarter’s reported figure.

Click here to know how the company’s overall third-quarter results are likely to be.

Amazon.com, Inc. Revenue (TTM)

 

Amazon.com, Inc. Revenue (TTM)

Amazon.com, Inc. revenue-ttm | Amazon.com, Inc. Quote

Factors to Consider

The strengthening data center network and an increasing number of AWS regions are likely to have acted as tailwinds.

The expanding cloud services portfolio is expected to have continued benefiting AWS’s performance in the third quarter. Services like Amazon QuickSight Q, Amazon Managed Service for Prometheus, Amazon FSx for NetApp ONTAP, Amazon Managed Grafana, Amazon MemoryDB for Redis, Amazon EBS io2 Block Express volumes and Amazon Healthlake were made available generally.

The company also rolled out three capabilities for Amazon Connect namely Amazon Connect Wisdom, Amazon Connect Voice ID and automated outbound communications in the third quarter.

Moreover, portfolio strength is likely to have helped AWS to sustain its dominance in the cloud market, wherein competition has been intensifying, owing to the growing endeavors by Microsoft’s (MSFT - Free Report) Azure, Alphabet’s (GOOGL - Free Report) Google Cloud, Alibaba Cloud and International Business Machines’ (IBM - Free Report) cloud division, among others.

Currently, Amazon carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growing Clientele to Drive AWS Sales

In the third quarter, AWS got selected by Arctic Wolf Networks as the primary cloud provider. Notably, Arctic Wolf will leverage AWS’s containers, serverless, analytics, database, compute, and storage to bolster its cloud-native security operations platform.

Sun Life picked AWS as its long-term cloud technology provider. Sun Life will leverage analytics, ML, storage, security and databases to deliver an enhanced digital experience to customers.

AWS collaborated with Wyndham Hotels & Resorts. AWS’s cloud technologies will be used by Wyndham for developing digital services and providing better experiences to customers across 21 hotel brands. Notably, Wyndham has selected AWS as its preferred cloud provider.

Further, one of the existing clients namely, Bundesliga — the professional association football (soccer) league of Germany — debuted two AWS-powered new Match Facts, Shot Efficiency and Passing Profile.

Continuous additions to the AWS customer base, driven by Amazon’s cloud portfolio strength, are likely to have driven growth in AWS sales in the third quarter.