Amazon Surpasses Expectations In Q3 Earnings Report

Amazon’s third-quarter earnings and revenue results, released on Thursday, have exceeded analysts’ expectations, leading to a surge in the company’s stock price during after-hours trading.

For the upcoming fourth quarter, which encompasses the crucial holiday season, Amazon has projected sales ranging from $160 billion to $167 billion. This projection aligns with a midpoint of $163.5 billion, reflecting a remarkable 9.6% growth compared to the previous year’s $149.2 billion. Analysts, surveyed by LSEG, had anticipated revenue of $166.6 billion.

In the third quarter, Amazon experienced a 13% increase in revenue, marking a significant rebound from a challenging 2022 marked by inflation and rising interest rates. The company has spent the past year focusing on cost-cutting measures after expanding rapidly during the pandemic. Amazon has laid off 27,000 employees since the autumn of last year and discontinued several of its less profitable ventures.

CEO Andy Jassy, who succeeded founder Jeff Bezos in mid-2021, expressed his satisfaction with the cost-efficiency efforts, stating, “We had a strong third quarter as our cost-to-serve and delivery speed in our Stores business improved. Our AWS growth continued to stabilize, Advertising revenue experienced robust growth, and overall operating income and free cash flow saw significant increases.”

Amazon’s core e-commerce business displayed a steady recovery, with a 7% year-over-year expansion, following a 4% growth in the previous quarter. Notably, this quarter includes the results of Amazon’s Prime Day promotion, described as its “biggest ever” sale, which took place in July.

The net income has more than tripled, reaching $9.9 billion, or 94 cents per share, compared to $2.9 billion, or 28 cents per share, during the same period in the previous year. The quarter’s net income includes a pre-tax valuation gain of $1.2 billion from Amazon’s investment in the electric car company Rivian.

Amazon’s favourable results come on the heels of better-than-expected reports from Alphabet and Meta earlier in the week. Nonetheless, Amazon’s shares experienced a decline of more than 6% over the past two trading days due to the market’s response to the earnings reports of Alphabet and Meta.

Digital advertising has continued to shine for Amazon as third-party sellers and large brands increase their ad spending to enhance visibility in the fiercely competitive marketplace. Ad revenue experienced a substantial 26% increase compared to the previous year, surpassing the growth rates of both Google (9%) and Facebook (23%). In contrast, Snap reported only a 5% rise in ad revenue.

In the cloud computing sector, Amazon’s Amazon Web Services (AWS) has demonstrated a slower growth rate, expanding by 12% in the quarter. This is in contrast to Microsoft, which reported a 29% increase in Azure revenue, and Google Cloud, with a growth rate of 22%.

AWS’s growth has decelerated in recent quarters, with cost-conscious large businesses looking to optimize their spending. Chief Financial Officer Brian Olsavsky revealed that the company continues to observe some “cost optimization” efforts from customers, albeit at a slower rate than before.

During the earnings call, CEO Andy Jassy voiced optimism about the future of AWS, noting that the cloud unit is witnessing an uptick in the pace and volume of closed deals. He mentioned that several deals signed in September will significantly impact the fourth quarter.