Sales are no longer the main thing. What is becoming Amazon's mainstay?

Amazon held its biggest sale of the year last week - Amazon Prime Day. Online sales remain an important part of the company's business, but now analysts tend to view it as a way to "fuel" the company's entire ecosystem. What's worth keeping an eye on for investors right now?

This year, for the first time in 10 years, Amazon conducted its Black Friday counterpart, the Prime Day sale, over four days instead of two, from July 8 to 11. 

This promotion was first held on July 15, 2015 and immediately surpassed many traditional sales, including Black Friday sales. Over time, Prime Day has become one of the key drivers of the company's revenue growth;

This year's sale has turned into a battlefield between Amazon and its rival Walmart in the US e-commerce market, wrote the Financial Times. Amazon followed Walmart in extending the duration of Prime Day and moving its promotion to July 8 to start on the same day as its competitor's similar event. But the latter increased the duration of its promotion from four to six days and this year decided for the first time to hold sales not only online but also in all its 4,600 stores in the US. 

"The two retail giants (Amazon and Walmart) are engaged in a fierce battle for the loyalty of American consumers," Emarketer analyst Sky Kanaves told the Financial Times.

According to Bank of America, last year's Prime Day promotion brought Amazon about $13.4 billion in 48 hours.

The increase in the length of Prime Days to 96 hours indicates that Amazon has made significant strides in strengthening its logistics infrastructure and is ready to serve significantly higher volumes of orders without risking inventory shortages, Bank of America analysts wrote in a July 1 report. 

Such sales can be taken as a barometer of consumer sentiment in the U.S., wrote Bloomberg. This year, sales in the first four hours after kickoff are down 14% from last year, Momentum Commerce calculated. That's an important indicator because it captures the initial wave of demand. In 2024, Momentum Commerce noted a surge in orders both in the morning and evening of the first day of Prime Day. According to Adobe Analytics, the first day of action saw online sales in the U.S. increase by 9.9%  year-over-year to $7.9 billion. "This is the biggest e-commerce day of the year," Adobe analysts conclude. By comparison, Thanksgiving Day sales brought in $6.1 billion in 2024.

One other figure stands out in particular this year: 57% of shoppers compared prices before buying. Walmart, Target and supermarkets were among the most popular alternatives to Amazon, according to Numerator, which tracked shopping behavior during Prime Day and surveyed more than 3,400 consumers. More than two-thirds of items bought on the first days of the promotion were $20 or less, with paper plates also in the top five. The best-selling item was dishwashing detergent. All this means people are saving every penny, writes Bloomberg. 

Amazon's total revenue in 2024 was $638 billion. E-commerce is the largest segment at the company - last year it accounted for about 39% of its total revenue. However, Bank of America estimates its segment operating margin at just 5.4%, meaning its profitability is quite low, notes the FT.

Amazon attracts consumers and customers to its other businesses during sales. In particular, Prime Day brings in new third-party sellers, which already account for about 60% of Amazon's retail sales. Commissions for services such as storing goods and processing orders became Amazon's second business line after e-commerce, bringing in more than $156 billion in revenue last year, or nearly a quarter of its total revenue.

BofA estimates that the company's advertising business (its operating margin is an impressive 55%) also gets a boost on sale days. 

Amazon Prime Day should therefore be seen not only and not so much as a way to sell as many items as possible, but also as a means to "energize" Amazon's vast ecosystem, writes the FT. 

In this ecosystem, investment banks single out the Amazon Web Service cloud services segment as the most important for the company's future development. This is still the company's third largest revenue segment (its share is 16.95%). However, last year it accounted for almost 60% of Amazon's operating profit.

Its annual revenue has grown from $45.4 billion in 2020 to $107.6 billion in 2024 - driven by the AI and cloud services market. 

If you value its projected revenue of $126 billion this year at a multiple of 11, similar to Microsoft, the value of that segment would be $1.4 trillion - that's more than 57% of Amazon's entire value, the FT wrote on July 11: "Prime Day remains a profitable business, but no longer a major event." 

JPMorgan believes AWS is the company's main growth driver - with annual revenue growth rates of 17-18%. The bank forecasts that the segment's revenue will rise from $107.6 billion to $125.7 billion this year and $148.3 billion next year. 

In a July 2 report, the investment bank maintained an "outperform" rating on Amazon's stock and a $240 target price through December this year, which implies a 6.67% upside from its July 11 closing price of $225. 

Investment bank Morgan Stanley on July 10 raised its target price on Amazon shares to $300 from $250, up more than 33% from the closing price on July 11. In a bullish scenario, Morgan Stanley expects the stock to rise to $350 on faster revenue and margin growth. In a bearish scenario, the bank said the stock could fall to $190. "Amazon is still our top pick," the bank said in a filing. 

Morgan Stanley analysts also raised their expected earnings per share to $8 in 2026 and $9 in 2027. But here we can rather talk about a return to their old forecast: the bank had such expectations before the introduction of U.S. trade duties. In April, Morgan Stanley analysts lowered the forecast to $7.19 in 2026 and $8.74 in 2027.

According to Morgan Stanley, AWS's organic annual revenue growth remains at 16-19%, indicating stable demand for cloud solutions (the bank, for example, also points to a surge in interest in Microsoft Azure cloud services). But AWS has the opportunity to grow even faster, according to the bank's analysts. Amazon previously invested in Claude's AI creator, Anthropic. Anthropic now uses Amazon's cloud platform as its primary platform. Anthropic's contribution to AWS revenue growth is about 0.6 percentage points and could increase to 1.5 points by the end of 2026, thanks to the expansion of computing capacity. 

BNP Paribas raised its rating on shares of Amazon to "Market Perform" from "Neutral" and raised its target price to $254 from $200, up 12.9% from the closing price on July 11.  in a report on June 26;

Analysts at the bank believe that Amazon's capital expenditures on data centers and AI infrastructure will grow markedly in the coming years, which will put additional pressure on its net income. However, unlike most companies, Amazon has the ability to offset this: the rapid development of AWS and advertising business, which already account for about 28% of total revenue, will support overall revenue and profitability growth, smoothing out the effect of rising costs.

This article was AI-translated and verified by a human editor