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Amazon Earnings Are Poised to Surge Further

By Sebastian Herrera 

Amazon.com Inc. is expected to post a strong start to the year, with results driven by continued demand for the company's e-commerce services and sales gains at its cloud-computing and advertising businesses.

Amazon's success in the past year has catapulted the company to new heights, after consumers flocked to online shopping during pandemic lockdowns. The tech giant's dominant grip over e-commerce and continued expansion into new industries have strengthened its power, although the company continues to face challenges from regulators and some employees.

Seattle-based Amazon is set to report first-quarter earnings after markets close on Thursday. Analysts polled by FactSet on average predict $104.5 billion in quarterly revenue and per-share earnings of $9.54. The company said in February that it expects first-quarter sales between $100 billion and $106 billion and operating income between $3 billion and $6.5 billion.

Amazon's first quarter is typically slower than its preceding end-of-year results, which are aided by holiday shopping sales. Yet the company has exceeded expectations in recent quarters. It shattered sales records last year as home-bound Americans turned to its delivery services. The company's stock price rose 76% in 2020.

Amazon's dominance in online retail also parallels the strength of Amazon Web Services, the business line that rents server capacity and software tools to other corporations. AWS is Amazon's main profit center, though its recent growth has slowed as Microsoft Corp. and Google's cloud unit have moved aggressively to sign up new customers. AWS Chief Executive Andy Jassy is set to take over as Amazon's CEO in the third quarter after Jeff Bezos said in February that he would depart the role to become executive chairman.

The company's advertising business has also become a major player in its industry. The fast-developing unit has put Amazon in competition with Google and Facebook Inc.'s leading ad businesses.

The coronavirus pandemic helped Amazon, Facebook and Google grow even stronger, with the tech titans for the first time collecting the majority of all ad spending in the U.S. last year, The Wall Street Journal reported in March. Amazon also recently said it will begin streaming the National Football League's Thursday-night games by 2023, a deal that will expand Amazon's ad dollars and compete more directly with traditional television broadcasters.

"What we always get back to with Amazon is the optionality -- they have multiple businesses firing off," said John Blackledge, an analyst with investment firm Cowen Inc. Mr. Blackledge said with the pandemic's end in sight, investors are eager to see Amazon ramp up its one-day shipping offerings.

Amazon's earnings follow strong performances by its big tech peers this week. Google parent Alphabet Inc. set sales records for the first quarter, fueled by a surge in digital ad spending, while Microsoft posted a 19% increase in quarterly sales because of strong demand for its cloud and videogame services. Apple Inc.'s profit more than doubled to $23.6 billion because of surging sales of new, higher-price iPhones and pandemic-induced buying of products such as Mac computers and iPads.

The nation's largest tech companies recorded staggering growth last year as consumers and businesses relied more on online shopping, software and cloud services, as well as their smart devices and video streaming. The combined revenue for Amazon, Google, Facebook, Apple and Microsoft grew by one-fifth, to $1.1 trillion. Their collective market capitalization soared to almost $8 trillion at the end of 2020, compared with about $5 trillion at the end of 2019.

Amazon's achievements have come as regulators increase their focus on the company's market power. Congress has considered significant changes to antitrust laws that could make it easier for the government to challenge certain business strategies and practices or force tech giants to separate lines of business. Last year, a congressional panel found Amazon had amassed "monopoly power" over sellers on its site, bullied retail partners and improperly used seller data to compete with rivals. Amazon has said that it is wrong to presume that success can only be the result of anticompetitive behavior and that it is focused on keeping prices lower for consumers.

The company has also dealt with activism from employees. It said Wednesday that it is raising wages for its hourly workers, providing more than 500,000 of its employees with pay increases of between 50 cents and $3 an hour. The higher wages were announced after workers at an Amazon warehouse in Alabama voted this month not to form a union. More than 70% of workers who voted at the facility rejected unionization, ensuring for now that Amazon would retain full control over how it manages and pays employees as well as what it expects from workers in warehouses.

Despite the victory at the Alabama warehouse, Mr. Bezos said the company aims to improve how it handles its workforce. In his last annual letter to shareholders as CEO, released this month, Mr. Bezos said Amazon is working to invent solutions to reduce the number of injuries at warehouses. He defended the company against accusations by critics that it treats its workers unfairly.

Write to Sebastian Herrera at Sebastian.Herrera@wsj.com

 

(END) Dow Jones Newswires

April 29, 2021 05:44 ET (09:44 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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