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Will Growing AWS Clientele Aid Amazon's (AMZN) Q4 Earnings?

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Amazon’s AMZN fourth-quarter 2019 results, which are scheduled to be released on Jan 30, are likely to reflect its strengthening cloud services offerings.

Amazon Web Services (AWS), the company’s cloud computing arm, holds a dominant position in the cloud computing space owing to solid momentum across customers on the back of its portfolio strength. Moreover, AWS offers strong discounts for long-term deals that help it in attracting customers. These factors are likely to have contributed to its fourth-quarter performance.

Notably, AWS has become an integral division of the company as it generates significantly high margins compared with Amazon’s retail business. We believe expanding customer base is expected to have contributed to AWS’ fourth-quarter top line.

Notably, AWS revenues came in at $8.99 billion, accounting for 12.9% of the net sales in the last reported quarter and surged 34.7% year over year. We further note that AWS operating income improved 8.9% from the year-ago quarter to $2.26 billion.

The Zacks Consensus Estimate for fourth-quarter 2019 AWS net sales is projected at $9.86 billion, indicating an improvement of 32.7% from the year-ago reported figure.

Click here to know how the company’s overall fourth-quarter performance is likely to be.

AWS to Lead Despite Intense Competition

During the fourth quarter, Amazon expanded cloud services portfolio by unveiling and making many AWS services generally available. These initiatives are likely to have contributed to the fourth-quarter performance.

We believe portfolio strength is likely to have helped AWS sustain its dominance in the cloud market where competition is intensifying due to growing endeavors by Microsoft’s MSFT Azure, Alphabet’s GOOGL Google Cloud and Alibaba’s BABA cloud division, among others.

Further, its strengthening data center network is expected to have driven AWS’ fourth-quarter performance.

Additionally, its strategic partnerships are anticipated to have benefited AWS in the quarter under review. The company extended partnership with Salesforce.com. Per the deal, Amazon Connect has been integrated with the Salesforce.com‘s new offering named Service Cloud Voice to deliver enhanced customer service support.

Further, Amazon unveiled AWS Wavelength, which is a combination of AWS compute and storage services, and cutting edge 5G networks. Notably, the company joined forces Verizon in order to leverage the latter’s 5G networks. These initiatives are likely to have benefited Amazon’s fourth-quarter performance.

Amazon.com, Inc. Revenue (TTM)

Amazon.com, Inc. Revenue (TTM)
Amazon.com, Inc. Revenue (TTM)

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

Growing Clientele to Drive AWS Sales

During the fourth quarter, AWS was selected as the primary cloud provider by ProSiebenSat.1 Media. The latter has decided to automate business by leveraging ML services of AWS.

Further, Western Union selected AWS as its preferred long-term strategic cloud provider. Moreover, Klarna and Old Mutual Limited selected AWS as its preferred cloud provider.

Furthermore, AWS was selected by Seattle Seahawks as its cloud, ML and AI provider. Additionally, FINRA CAT chose AWS as its cloud provider for the Consolidated Audit Trail (CAT). Also, Cerner selected AWS as its preferred cloud, AI and ML provider.

Moreover, Best Western Hotels & Resorts, a global lodging powerhouse, moved infrastructure to AWS in a bid to automate processes and develop more personalized experiences for travelers.

Further, AWS added another customer namely BP in the to-be-reported quarter. Notably, BP is closing its European mega data centers and moving all data to AWS in order to leverage latter’s ML, analytics, storage, security, databases and compute services.

Hence, the company has witnessed expanding customer base during the quarter under review, driven by portfolio strength.

Moreover, expanding clientele is likely to have driven net sales of AWS in the fourth quarter.

Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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