Amazon Prepares to Release Q3 Earnings: Strong AWS Growth Amid Retail Margin Challenges

Key Highlights:

• Amazon.com Inc (NASDAQ:AMZN) is set to report Q3 earnings on October 31, with Jefferies highlighting strong growth in Amazon Web Services (AWS).
• Analysts forecast Amazon’s Q3 revenues at $157 billion, with AWS contributing significantly to profit margins despite challenges in retail margins.
• Jefferies expects Amazon to guide Q4 revenues slightly below the Street estimate, with medium-term prospects driven by AI-driven cloud demand.

Amazon.com Inc (NASDAQ:AMZN) is preparing to release its third-quarter earnings on October 31, with analysts at Jefferies anticipating strong performance in its cloud services segment, Amazon Web Services (AWS), while retail margins face uncertainties.

Q3 Earnings Outlook

Jefferies forecasts Amazon's Q3 revenues at $157 billion, aligning closely with the Street estimate of $157.3 billion. The firm expects Amazon’s operating profit to come in at $15 billion, which is 2.1% higher than the consensus estimate of $14.7 billion. This optimistic projection is largely attributed to the robust performance of AWS.

"AWS continues to show strong growth, with data indicating the potential for 20% year-over-year growth,” Jefferies analysts noted. This momentum could result in significant quarter-over-quarter growth, with AWS contributing to an overall operating profit margin of 9.5%, up from 4.2% in the previous quarter.

Challenges in Retail Margins

Despite AWS’s strong performance, Amazon’s retail segment remains a point of concern. The company is grappling with a shift toward consumable products, which tends to lower first-party margins. This shift could also impact Amazon’s third-party services and advertising revenues. Analysts caution that these changes may weigh on Amazon’s near-term profitability, particularly in the retail division.

Jefferies expects Amazon to guide fourth-quarter revenues between $179.5 billion and $186.5 billion, which is slightly below the Street estimate of $186.4 billion. In terms of operating income, the firm projects a range of $12 billion to $16 billion, compared to Visible Alpha’s forecast of $17.4 billion.

Jefferies has also adjusted its profit estimates for the fourth quarter and 2025, citing recent wage increases for Amazon’s fulfillment employees. Analysts now anticipate $16.5 billion in Q4 profit, down from the previous forecast of $17.4 billion. They further warn that the Street might be overestimating Amazon's Q4 guidance, based on the company’s historical trends.

Medium-Term Prospects: AWS and AI-Driven Cloud Demand

Despite the near-term concerns, Jefferies remains optimistic about Amazon’s medium-term outlook. The firm points to AWS’s growth and margin potential as key reasons to remain bullish on the stock. Additionally, the increasing demand for AI-driven cloud services could bolster Amazon’s cloud business in the coming years.

Jefferies also sees the potential for Amazon’s retail margins to reaccelerate in the second half of 2025 if the current shift toward consumables stabilizes. Overall, the firm maintains a "Buy" rating on Amazon stock, with a price target of $210.

As Amazon prepares to announce its Q3 earnings, investors will be watching closely to see how the company balances its strong cloud growth with ongoing challenges in its retail operations.