Amazon.com's stock is on the rise as its highly anticipated Prime Day sales event takes place. The growth and success of the Amazon Web Services (AWS) division will play a crucial role in determining the stock's continued upward trajectory.
Prime Big Deals Day
Amazon's "Prime Big Deals Day" is an exclusive two-day promotional event for Prime members. Starting on Tuesday, the event offers incredible bargains across various product categories, including beauty products, dish liquids, and clothing. This year's event follows the success of the previous Prime events held on July 11 and July 12, which generated the highest sales of any single day in Amazon's history.
Positive Stock Performance
Historically, Amazon's stock has shown positive performance in the week following a Prime event. After July's event, the stock experienced a 3.5% increase. Analysis from Dow Jones Market Data reveals that from 2015 to 2022, the stock has, on average, gained 1.4% in the week following Prime sales.
Outlook for Future Growth
As Amazon's stock continues to climb, its trajectory after the end of October will hinge on management's insight into the growth prospects of AWS. The company will discuss its third-quarter earnings and provide an update on AWS during a call on Oct. 26. Wells Fargo analyst Ken Gawrelski identifies this as the "largest swing factor" that will influence the earnings results.
As Amazon's Prime Day rolls out with attractive deals, the company's stock is following its historical trend of performing well during and after this annual sales event. However, investors will be keenly watching management's commentary on AWS during the upcoming earnings call as it will be a critical determinant of the stock's future performance.
AWS Acceleration Drives Amazon's Success
Amazon Web Services (AWS), the leading cloud computing service provided by Amazon, has been instrumental in driving the company's success. In the first quarter, AWS revenue experienced a slight decline of 0.1% compared to the previous quarter, causing concern among investors. This led to a temporary decrease in the stock value by 4.3% and 3.4% in the days following the earnings report.
However, the narrative took a positive turn in the third quarter as AWS revenue growth accelerated significantly. Compared to the second quarter, there was a notable increase of 3.7%, and a substantial growth of 12% when compared to the same period last year. Analysts recognized this as a crucial factor contributing to the favorable earnings result, resulting in a surge in Amazon's stock value to almost $145 by mid-September. It is important to note that the recent downturn of growth stocks due to rising Treasury yields has impacted Amazon's stock performance.
Looking ahead, analysts emphasize the need for confidence in a meaningful acceleration in the fourth quarter of 2024 for the stock to maintain its positive trajectory. Gawrelski, an esteemed analyst, rates the stock as Overweight or equivalent to a Buy rating, with a price target of $165. This implies a potential gain of 28% from Tuesday's opening price.
Analysts overall anticipate a 12.5% increase in AWS revenue for the third quarter compared to the same period the previous year. Given this positive outlook, they rate the stock as Buy and have set a target price of $172.81.
It is evident that AWS remains a key driver of Amazon's success, and its continuous growth is crucial for sustaining positive market sentiment.