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What Amazon earnings say about the tech sector

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Yahoo Finance's Brian Cheung and Akiko Fujita discuss Amazon earnings and how they compare to other tech earnings.

Video Transcript

[MUSIC PLAYING]

BRIAN CHEUNG: We need to highlight shares of Amazon this morning, which are really rocketing higher after reporting earnings, again, stronger than expected revenue, and upbeat guidance, as the stock up almost 11%. The company now projecting between $125 to $130 billion in revenue for the next quarter. That was above what the Street was expecting in that report. But overall, this is a company that, like the other big tech stocks, has really taken quite a beating so far this year. But that guidance reversing some of that this morning.

AKIKO FUJITA: Yeah, the guidance certainly helped lift the stock when we got it out yesterday. I mean, you could still argue that some of the areas where they have been challenged still exist. E-commerce is one that that slowdown that we saw on the previous quarter is still continuing. That hasn't necessarily reversed. One thing that really stood out to me was the advertising revenue. And we've talked about this a lot, sure. Advertising for Amazon, it's a different market than some of the other competitors, if you want to call them that.

BRIAN CHEUNG: [INAUDIBLE]

AKIKO FUJITA: But, but, we have heard throughout the earnings call from other players in the ad market-- obviously, names like Meta, as well as Alphabet-- who have been talking about some of the softening demand. Their ad revenue was up 18% year on year. And that, to me, begs the question, how much of-- how much market share are they taking away from some of these traditional big players? Amazon is, obviously, a big player. But in the ad market, they've lagged behind Facebook, Meta, and Alphabet.

BRIAN CHEUNG: Yeah, yeah. I mean, still, they brought in, what, $8.76 billion in advertising. So it's still a very nice amount of money that they're bringing in. But to your point about whether or not they're taking market share away, I mean, we have to acknowledge that the advertising story, which is very much part of the worry for these big tech companies, which is, as we go into a downturn or perhaps a recession, companies just won't be as willing to put ad dollars into the big tech companies, like Alphabet or Amazon in the future.

Well, that hasn't affected their Q2 earnings necessarily as much, right? Because the story for consumption and inflation in the current environment is still very much at that teetering point as of right now. But it's really been the guidance from a lot of these companies for the quarters to come that has been the drag on these stocks.

So, to your point, I feel like if there were to be any sort of big shift in who has the market share, that story might not play out until the second half of this year. But when you see Amazon saying, we still expect to have $125 to $130 billion in overall earnings, which includes, of course, Amazon Web Services, the goods side of its actual e-commerce platform as well, you might be feeling more confident about Amazon's ability to weather that advertising storm if it does materialize.

AKIKO FUJITA: Well, and we should point out Amazon did post a net loss in the quarter.

BRIAN CHEUNG: They did. [INAUDIBLE]

AKIKO FUJITA: That was--

BRIAN CHEUNG: By the way.

AKIKO FUJITA: That was from the writedown from Rivian, which is a story we heard in the previous quarter as well. Obviously, Amazon big investors in that. That stock has fallen and that writedown coming with it.

BRIAN CHEUNG: Yeah, and again, that's the idiosyncratic thing to this quarter. That should not impact the future quarters. But again, they did lose money. But look, for Amazon, the story is well past the, "we're willing to sustain losses for this company." They are on their way to becoming a cash cow to something like the effect of what Apple is right now. But you're starting to see this story kind of build here over which are the companies that are in a stronger cash position that have counter cyclicality in their revenue lines to be able to weather a recession.

And I think that's probably one big story for why you've seen stocks like Amazon maybe diverge a little bit from the story over at Meta, for example, where we were just talking about with Dan Howley, there is a concern about the viability of the Metaverse play that they have locked themselves into as of the end of last year to be able to weather this recession. Because bank stocks, for example, they have revenue lines that, when things get bad, perform well for them to counteract other revenue streams that don't do as well.

AKIKO FUJITA: But with some of these big tech names, it's also about how diversified that portfolio is, right? I mean, Meta is very heavily skewed towards ad revenue, whereas if you look at Amazon, they've obviously got AWS. They've got Amazon, the e-commerce side. They've got the advertising side. I mean, same story for Apple as well. They've got a lot of revenue streams they can tap into. And you could argue that that would allow them to stay-- ride out the storm a bit more, although stocks still down--

BRIAN CHEUNG: Yeah, well--

AKIKO FUJITA: --on the year.

BRIAN CHEUNG: Stocks [INAUDIBLE] stocks, so, you know.