Amazon, the e-commerce giant and cloud computing leader, released its third-quarter earnings report on Thursday, leaving both investors and analysts pleasantly surprised. The company’s performance far exceeded expectations, with robust growth in various segments.
Surpassing Expectations: Earnings and Revenue
- Earnings Per Share Surged: The reported earnings per share of 94 cents, surpassing the 58 cents expected by LSEG (formerly known as Refinitiv).
- Revenue Soared: The company’s revenue reached a staggering $143.1 billion, significantly outperforming the expected $141.4 billion projected by LSEG.
Key Segments Delivering Impressive Results
Investors closely examined the performance of two key segments:
1. Amazon Web Services
- AWS Performance: AWS generated $23.1 billion in revenue, just slightly below the expected $23.2 billion, according to StreetAccount.
2. Advertising Revenue
- Advertising Momentum: Amazon’s advertising segment reported $12.1 billion in revenue, surpassing the expected $11.6 billion, according to StreetAccount.
Optimistic Outlook for Q4 
Amazon’s outlook for the upcoming fourth quarter, encompassing the crucial holiday season, also revealed positive projections. The company anticipates sales to be within the range of $160 billion to $167 billion. This guidance met analysts’ expectations, with an approximate midpoint of $163.5 billion, representing a remarkable 9.6% growth compared to the previous year’s $149.2 billion.
Robust 13% Revenue Growth
The company’s strong Q3 performance, including a 13% increase in revenue, suggests a resurgence for the company. This growth is particularly notable after grappling with the challenges of 2022, marked by surging inflation and rising interest rates.
Cost-Cutting Measures Pay Off
The strategic cost-cutting initiatives have been instrumental in achieving these impressive results. Over the past year, the company implemented significant cost reductions, including the layoffs of 27,000 employees and the discontinuation of less profitable ventures.
Andy Jassy, CEO of Amazon, noted, “We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly.”
E-Commerce Business Bounces Back
Sales in the company’s core e-commerce business have shown continuous recovery, expanding by 7% year over year, following a 4% growth in the previous quarter. Notably, this quarter included the results of the “biggest ever” Prime Day promotion held in July.
Tripled Net Income
Amazon’s net income surged more than threefold, reaching $9.9 billion, or 94 cents per share, compared to $2.9 billion, or 28 cents per share, in the previous year. This increase in net income for the quarter can be attributed, in part, to a pre-tax valuation gain of $1.2 billion resulting from the company’s investment in the electric car company Rivian.
Comparative Analysis: Amazon vs. Tech Giants
Amazon’s remarkable Q3 results follow a trend of better-than-expected performances from tech giants. Notably, Alphabet and Meta reported strong earnings earlier in the same week. However, the company’s stock experienced a notable increase in contrast to Alphabet and Meta, which saw declines after their earnings reports.
- Alphabet Concerns: Alphabet faced investor concerns due to disappointing revenue in the Google Cloud division.
- Meta’s Caution: Meta’s sell-off was prompted by cautious comments related to the ad market in light of the escalating conflict in the Middle East.
Amazon’s Advertising Shines
Digital advertising remains a bright spot for the company, as third-party sellers and large brands increase their advertising spending to enhance visibility in a fiercely competitive marketplace. The company’s ad revenue surged by an impressive 26% compared to the previous year, outpacing Google’s ad growth at 9% and surpassing Facebook’s ad growth at 23%. Snap, on the other hand, reported a mere 5% increase in revenue.
Cloud Competition
While the company continues to dominate the cloud market, it appears to be ceding some market share to its competitors. AWS showed a growth rate of 12% in the quarter. In contrast, Microsoft’s Azure revenue jumped by 29%, and Google Cloud expanded by 22%.
AWS has seen a slowdown in growth in recent quarters as larger enterprises have aimed to control their spending. Chief Financial Officer Brian Olsavsky commented that the company continues to witness “cost optimization” from customers, albeit at a reduced rate compared to previous periods.
He further noted that Amazon is diligently reducing various costs associated with fulfillment, delivery, and inventory handling, which is evident in the company’s profit margin. Amazon reported an operating margin of 7.8%, the highest since early 2021.
Optimism for AWS
During a conference call with analysts, CEO Andy Jassy expressed his optimism about AWS’s future, highlighting that the cloud unit is experiencing an upswing in the pace and volume of closed deals. He mentioned that several significant deals were inked in September, with the results expected to manifest in the fourth quarter.
In conclusion, Amazon’s Q3 performance has set a positive tone for the company, surpassing expectations in earnings and revenue, and revealing strength in key segments. While cloud market competition remains fierce, Amazon’s robust advertising revenue and strategic cost-cutting efforts have played a significant role in its impressive results. The company’s future outlook for AWS and its optimistic projections for the holiday season suggest continued growth and resilience in a rapidly evolving tech landscape.
