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

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Zacks Equity Research
·4 min read
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Amazon’s AMZN fourth-quarter 2020 results, which are scheduled to be released on Feb 2, are likely to reflect its strengthening cloud services offerings.

The company’s cloud computing arm, Amazon Web Services (“AWS”), holds the leading position in the cloud market, courtesy of 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 get reflected in the fourth-quarter results.

Notably, AWS has become an integral division of the company as it generates significantly high margins. Expanding customer base is expected to have contributed to AWS’s top line in the fourth quarter.

In the last reported quarter, AWS revenues were $11.6 billion, accounting for 12.1% of net sales. The figure also surged 29% year over year. We further note that AWS’s operating income improved 56% from the year-ago quarter to $3.5 billion.

The Zacks Consensus Estimate for fourth-quarter AWS net sales is pegged at $12.9 billion, indicating an improvement of 28.5% from the year-ago reported figure.

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

AWS to Lead Despite Intense Competition

In the fourth quarter, Amazon expanded the cloud services portfolio by unveiling and making several AWS services generally available. Impacts of these initiatives are likely to get reflected in AWS’s results in the quarter under review.

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

Additionally, its partnerships are anticipated to have favored AWS in the quarter under review. Notably, the company extended relationships with Carrier Global and BlackBerry, impacts of which are expected to get reflected in the fourth-quarter results of AWS.

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

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

In the soon-to-be-reported quarter, Thomson Reuters completed the shifting of its several servers and revenue-generating applications to AWS.

Further, Metro Goldwyn Mayer entered a multi-year agreement with AWS to shiftlibrary and critical SAP workloads to the latter.

Further, ViacomCBS selected AWS as its preferred cloud provider for its global broadcast media operations and extendedthe agreement to shift operations for its entire broadcast footprint to the latter’s cloud platform.

Additionally, Boom Supersonic, which is gearing up to bring back supersonic flights to the skies, went all-in on AWS. Also, Star Alliance went all-in on AWS.

MercadoLibre, one of thee-commerce dominants in Latin America, also selected AWS as its primary cloud provider.

Further, AWS got selected by Zalando, Nationwide and Twitter as the official cloud provider, preferred cloud provider and strategic cloud provider, respectively.

In addition to this, it got chosen by Zoom and Itau Unibanco as the preferred cloud provider and long-term strategic cloud provider, respectively.

Furthermore, AWS was selected by Standard Chartered Bank. Moreover, the bank signed a five-year agreement to leverage AWS’ reliable infrastructure and cloud services across its entire business in a bid to digitalize its operations and deliver personalized banking services across its 60 markets worldwide.

Further, Arm Holdings revealed plans of shifting a major portion of its electronic design automation workloads to AWS.

Notably, the company witnessed additions to its customer base during the quarter under review, driven by portfolio strength. This is likely to have aided it in accelerating AWS sales 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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