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Well, Amazon reporting first quarter earnings after the markets closed on Thursday, but our next guest says there will be less focus on the first quarter results and more on the longer-term outlook given those headwinds from tariffs. So moreover, we're bringing in Arun Sundaram, senior equity research analyst at CFRA research. Arun, it's good to see you. Before we get to the big earnings picture, I do want to ask you about some of those headlines today, the reporting that we were going to see this sort of tariff breakdown in some of Amazon's pricing, then Amazon saying, no, we're not necessarily going to do that, but the White House pushing back. I mean, what do you think is sort of the right way for Amazon and some other companies to to sort of approach this?

Yeah, yeah, it's certainly been an interesting day for Amazon. I think, I think in my, in my view, I think the whole thing kind of got blown out of proportion, um, because of that, that unconfirmed report that came out, then the White House came out with their statement and Amazon had to quickly respond back to it. Um, you know, I, I don't think Amazon was ever considering breaking out tariff surcharges on their main e-commerce website. Um, you know, they did, they did say that too and they, they said that these tariff surcharges were mainly for Amazon haul, which is essentially their Temu, Shean copycat website, but, um, yeah, I, I don't think big box retailers in general will, will break out tariff surcharges. One is because it's just a very complex calculation and it could be really messy. Um, I think it's probably going to have more, probably more questions and answers if they did break out tariff surcharges. Like, why is this product have a higher tax versus this one? Um, you know, right now, retailers are also trying to figure out who's going to, you know, absorb some of these tariff costs. You know, some of it's going to, no doubt, be passed on to the consumer, but some of it's going to be absorbed by retailers, some of it's going to be absorbed by suppliers. So how is that going to be calculated into the tariff surcharge calculation? So, you know, I think it, I think it would be too messy and probably hurt sales to be honest, if they did break it out too. So, um, I don't think you'll see big box retailers, um, you know, take that route.

So I'm just curious, Arun, because it is, you know, it is the big question for Amazon, or certainly a big question, you know, how, how exactly, Arun, are they going to navigate this China tariff exposure? I did see the team over at Roth, they're telling their clients more than 30% of products sold on Amazon could be coming from China. And so I'm, I'm just curious, what will be Amazon's game plan and what is going to be Amazon's strategy to navigate that?

Yeah, yeah. I mean, no doubt, they have a significant portion of Chinese sellers, Chinese third-party sellers. They don't, they're never disclosed it, their exact percentage, but it, it is known, it is expected to be a sizable portion. Um, the good thing is that I think, you know, ever since the first trade war back in 2018, 2019, uh, they did move a significant portion of their sourcing or supplier base out of China into other, other Asian markets like, you know, Vietnam, Cambodia, Thailand, India, places, places like that. Uh, I think that's going to be beneficial too. Um, you know, over the last five years or so, Amazon's also, um, uh, diversified their business in terms of, um, not just selling discretionary bigger ticket items, but also more, you know, daily use consumables, you know, things like deodorant, toothpaste, paper towels, things like that. Um, those products typically face less tariff risk as well. So that's going to help them, I think as well. And third, you know, Amazon has a very large, obviously very large business, a very, uh, a lot of many different suppliers. They also, 60% of their e-commerce business is also third-party sellers and only 40% is their own, um, first party sales. So in, in theory, you know, that 60%, which is, which is the third party business, they don't, Amazon generates a fee, uh, based off of fulfillment services and things like that. So in theory, higher prices from third party sales could generate higher, uh, fee revenue for Amazon. So, you know, it, I think there's a lot of pros and cons you have to weigh out before you determine whether, you know, tariffs are going to be fully bad or fully good. So it's, it's a little bit, it's a little bit complicated. I think it's the best way to say it.

Yeah, I mean, I guess unless from the third party seller front, unless people buy less stuff because it's more expensive. I mean, and that goes for AWS as well. I want to ask about the implications there because, you know, if Amazon's clients, if it's big enterprise clients are feeling the pinch from tariffs, are they then going to not spend as much on AWS? Is that portion of their spending, you know, is that vulnerable in this case?

Yeah, so, yeah, the way we kind of framed it is that, you know, tariffs probably have a bigger risk to Amazon's e-commerce business, but a broader macro slowdown because of tariffs have, could have negative implications to Amazon's AWS business as well as its advertising business. Um, so that's something that we're going to, you know, we'll, we'll likely look to hear on the, on the earnings call in a few days. But yeah, we'll have to see. I think, I think right now, the, the commentary that we've been hearing from, from Andy Jassy and even Amazon's shareholder letter that they released a few weeks ago sounded pretty upbeat in AWS. So I think expectations are high for AWS this year. Uh, Amazon's also investing, they're expected to invest over 100 billion dollars in capex this year. A large, most of that's going to be in, in AWS and, and AI investments. Um, so we are pretty upbeat for AWS, but because of that capex, capex investments, um, there's a chance that AWS margins this year could be softer than, than the previous year. And I don't know if that's fully baked into, to, into the consensus estimates right now, so that could be, you know, an area where we could see downside risk is that AWS margin line.