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Amazon (AMZN) is scheduled to report results of its fourth fiscal quarter after the market close on Thursday, February 2, with a conference call scheduled for 5:30 pm ET. What to watch for:

HOLIDAY SALES: For the fourth quarter, Amazon has said net sales are expected to be between $140B and $148B, or to grow between 2% and 8% compared with the same quarter of last year. The company expects to see anywhere from no operating income to $4B in Q4, compared with $3.5B in the same quarter of last year.

Current consensus EPS and revenue forecasts for Amazon's December quarter stand at 17c and $145.45B, respectively, according to data provided by Refinitiv. That EPS estimate is down from 20c, where it stood 90 days ago, Refinitiv data shows.

Recently, Credit Suisse analyst Stephen Ju raised the firm's price target on Amazon to $171 from $142 and kept an Outperform rating on the shares ahead of the company's quarterly report. The firm believes Amazon can drive the most efficiency over time in shipping costs and thinks 2023 will mark the moderation of shipping cost inefficiencies. From an operational perspective, this will mean less miles driven per package as well as more packages per delivery run; from a financial perspective, this will show up in the form of slower shipping cost versus gross merchandise value growth.

CLOUD: Last quarter, Amazon reported Amazon Web Services net sales of $20.54B, which was up from $16.11B in the same quarter of the prior year. AWS operating income grew to $5.4B from $4.8B in the prior year period.

In a note published on January 25, after Microsoft (MSFT) reported fiscal Q2 earnings and CEO Satya Nadella highlighted how "organizations are exercising caution given the macroeconomic uncertainty," BofA analyst Justin Post noted that Azure's constant currency growth decelerated 4 points to 38% year-over-year. CFO Amy Hood noted Azure exited Q2 at mid-30% year-over-year constant currency growth and that Q3 growth is expected to further decelerate 4-5 points from the mid-30% range, which implies 30-31% growth, added the analyst. Microsoft and Amazon shares were up 4% and 3.5%, respectively, in after-hours trading prior to the guidance commentary, but both erased those gains following guidance, the firm pointed out. Given Microsoft's commentary on Azure, AWS will remain a concern into Amazon's earnings report, said BofA, which expects a deceleration in Q1 to 20% year-over-year growth for AWS. BofA maintains a Buy rating and $135 price target on Amazon shares.

In a recent preview note, Oppenheimer analyst Jason Helfstein said he is "confident" in the firm's 2023 and 2024 AWS revenue estimates being 3% and 5% below consensus, respectively. Customers are transitioning on-demand billing to discounted term contracts; optimizing workloads; decreasing volume/usage as the digital economy reverts somewhat back to in-person; reduced funding for startups/SaaS/Internet companies; and new application porting is decelerating, the firm argues in support of its view. Oppenheimer's channel checks confirm further revenue pressure from all the above, particularly from more term contracts, with peak impacts hitting mid-2023. The firm estimates a two-year revenue impact of about 15%, but this is essentially a one-time correction. Despite the near-term headwinds, Oppenheimer remains very positive on AWS long-term. The firm has an Outperform rating on Amazon with a price target of $130.

JOB CUTS: On January 5, Amazon CEO Andy Jassy shared a message sent to Amazon employees, stating in part: "As I shared back in November, as part of our annual planning process for 2023, leaders across the company have been working with their teams and looking at their workforce levels, investments they want to make in the future, and prioritizing what matters most to customers and the long-term health of our businesses. This year's review has been more difficult given the uncertain economy and that we've hired rapidly over the last several years. In November, we communicated the hard decision to eliminate a number of positions across our Devices and Books businesses, and also announced a voluntary reduction offer for some employees in our People, Experience, and Technology organization. I also shared that we weren't done with our annual planning process and that I expected there would be more role reductions in early 2023. Today, I wanted to share the outcome of these further reviews, which is the difficult decision to eliminate additional roles. Between the reductions we made in November and the ones we're sharing today, we plan to eliminate just over 18,000 roles. Several teams are impacted; however, the majority of role eliminations are in our Amazon Stores and PXT organizations... We typically wait to communicate about these outcomes until we can speak with the people who are directly impacted. However, because one of our teammates leaked this information externally, we decided it was better to share this news earlier so you can hear the details directly from me. We intend on communicating with impacted employees (or where applicable in Europe, with employee representative bodies) starting on January 18. Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so. These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I'm also optimistic that we'll be inventive, resourceful, and scrappy in this time when we're not hiring expansively and eliminating some roles."

After Jassy confirmed that the company is planning to lay off roughly 18,000 employees, or about 5.5% of corporate staff, BofA analyst Justin Post noted that this was more than the initial 10,000 planned in November. The increase in total layoffs by 8,000 "could be a cautious sign for holiday sales," but Amazon did indicate in November that additional layoffs were being considered and these cuts will likely improve sentiment on Amazon management's focus on a better balance between profits and growth, Post tells investors. The analyst, who maintains a Buy rating on Amazon, also thinks Amazon's layoffs and stock reaction will be a good read for Alphabet (GOOGL) as he continues to expect the latter will more aggressively cut costs in 2023.

BUY WITH PRIME: On January 10, Amazon stated in a blog post: "We launched Buy with Prime in April 2022 as a new benefit for Prime members to extend the shopping benefits that we all know and love-like fast, free shipping, a seamless checkout experience, and easy returns-to online stores beyond Amazon.com... Allowing merchants to offer Prime shopping benefits on their own direct-to-consumer online stores is an exciting part of the Buy with Prime mission to help merchants of all sizes grow their business whether on Amazon or beyond. With shoppers purchasing directly from merchants' online stores, Buy with Prime allows merchants to build customer relationships and brand loyalty while offering conversion-driving benefits. In fact, Buy with Prime has been shown to increase shopper conversion by 25% on average, according to internal Amazon data. It's important to note that this is an average. We've seen some merchants, like Trophy Skin, report shopper conversion of more than 30% since adding Buy with Prime to their online store... Since launching in April 2022, Buy with Prime has been available to merchants on an invite-only basis... We're thrilled with how Buy with Prime has helped merchants succeed so far, and we're just getting started. We're excited to announce that by January 31, Buy with Prime will be available to all eligible U.S.-based merchants."

Subsequently, UBS analyst Kunal Madhukar kept a Sell rating on Shopify (SHOP) while noting that Amazon's Buy with Prime expansion could result in 6%-14% of the company's revenue being at risk, which translates into 2%-6% of gross profits at risk. While the actual impact could be lower depending on merchant and consumer adoption, this is a risk investors should track as it can dampen Shopify's revenue growth, the analyst stated.

On February 1, Morgan Stanley analyst Brian Nowak said the firm's base model shows that every 2% increase in U.S. adoption of Buy with Prime could add about $1B of annual EBIT and in a bull case with scale efficiencies and more volumes this could be a $3.5B-plus EBIT business. Competitive dynamics matter, said the firm, which notes that sellers will have the choice between using Buy with Prime, Shopify Fulfillment or coordinating their own shipping through UPS (UPS), FedEx (FDX) or otherwise, but Buy with Prime shipping is priced competitively against peers while also offering the fastest delivery, the firm added. Morgan Stanley has an Overweight rating and $140 price target on Amazon shares.

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