The Market's True Earnings Expectations

Amazon heads into its third-quarter report with an awkward split screen. Its cloud business just posted its fastest growth in 18 quarters along with margins that skeptics said AI would never allow, yet the stock has slipped since that report while the broader market climbed. The October 29 release, due after the close, needs to show that the AWS inflection was a trend rather than a one-quarter spike, and that heavy spending and rising costs are not quietly eating the gains.

The Street expects earnings of $2.02 per share on revenue of about $202.03 billion. Revenue growth of 12.1% looks like a sharp slowdown from the roughly 20% pace of the second quarter, and earnings growth of just 3.6% from last year's $1.95 looks almost flat. Both figures are distorted. Management guided to sales of $197 billion to $202 billion and explained that Prime Day shifted into the second quarter, shaving about 400 basis points off reported growth, with currency costing roughly another 80. Analysts have trimmed their numbers since that outlook, but consensus still sits at the very top of the range, a bit above it in fact. That leaves little room for an ordinary result to read as a beat on sales. The earnings whisper of $1.98 sits slightly below consensus, a sign that the informal bar for profit is a touch lower than the published one.