Amazon's Q3 Earnings Beat Expectations, Driven by Cloud and AI Investments

Amazon shares jump 7%, approach record after earnings beat

Amazon CEO Andy Jassy speaks at the Bloomberg Technology Summit in San Francisco on June 8, 2022. Amazon shares jumped 7% on Friday and neared an all-time high after the company reported better-than-expected earnings, driven by growth in its cloud computing and advertising businesses. The stock is up about 32% for the year, and touched $200.50 on Friday. It's highest close was $200, a mark the stock hit twice in July. Revenue increased 11% in the quarter to $158.9 billion, topping the $157.2 billion estimate of analysts surveyed by LSEG. Earnings of $1.43 topped the average analyst estimate of $1.14. Sales in the Amazon Web Services cloud business increased 19% to $27.4 billion, coming in just shy of analyst estimates, according to StreetAccount. That was an acceleration from 12% a year ago, but trailed growth at rivals Microsoft and Google, where cloud revenue increased 33% and 35%, respectively. Microsoft's Azure number includes other cloud services. Amazon's capital expenditures surged 81% year-over-year to $22.62 billion, as the company continues to invest in data centers and equipment like Nvidia processors to power artificial intelligence products. Amazon has launched several AI products in its cloud and e-commerce businesses, and it's also expected to announce a new version of its Alexa voice assistant powered by generative AI. "Amazon has integrated AI into what is the most diverse tech footprint of any mega cap, with multi-billion revenue streams in e-commerce, advertising, subscriptions, online video, and cloud," analysts at Roth MKM wrote in a note after the earnings report. They have a buy rating on the stock. Brian Olsavsky, Amazon's CFO, said on the earnings call that the majority of the company's 2024 capex spending is to support the growing need for technology infrastructure. CEO Andy Jassy said the company plans to spend about $75 billion on capex in 2024 and that he suspects the company will spend more next year. "The increase bumps here are really driven by generative AI," Jassy said on the call. "It is a really unusually large, maybe once-in-a-lifetime type of opportunity," he said, noting that shareholders "will feel good about this long term, that we're aggressively pursuing it." Advertising was another bright spot. Sales in the unit expanded 19% to $14.3 billion during the quarter, meeting expectations and outpacing growth in Amazon's core retail business. Amazon's ad growth was about inline with Meta, which saw 18.7% expansion, and faster than growth at Google, which reported a 15% increase in ad revenue. Snap's sales also jumped 15% from a year earlier. Amazon forecast revenue in the current quarter to be between $181.5 billion and $188.5 billion, which would represent growth of 7% to 11% year over year. The midpoint of that range, $185 billion, fell short of the average analyst estimate of $186.2 billion, according to LSEG.

Cloud growth helps Amazon to another earnings beat, and its stock jumps - SiliconANGLE

Cloud growth helps Amazon to another earnings beat, and its stock jumps Strong growth in Amazon.com Inc.'s cloud and advertising businesses paved the way to another impressive earnings and revenue beat today. The company's stock was moving higher in extended trading, even though its guidance for the current quarter came up short of analyst's expectations. Amazon reported third-quarter earnings before certain costs such as stock compensation of $1.43 per share, easily beating Wall Street's target of $1.14 per share. Revenue for the period increased by 11% from a year earlier, to $158.88 billion, topping the consensus estimate of $157.2 billion. All told, Amazon delivered an operating profit of $17.4 billion, up from just $11.2 billion in the year-ago quarter. That was an encouraging sign, as it suggests that the company's focus on efficiency and cost-cutting, which includes cutting 27,000 jobs since 2022, is having a positive impact on its bottom line. As always, the most important growth and profit driver for Amazon was its cloud computing unit, Amazon Web Services Inc., which delivered sales of $27.45 billion, just shy of the Street's target of $27.52 billion. Though analysts may have been expecting more, they were no doubt encouraged by the unit's faster growth, with sales accelerating by 19% in the quarter, compared with just 12% growth one year earlier. Amazon had been navigating a slowdown in the cloud last year, as customers trimmed their information technology spending budgets on heightened economic concerns, but the renewed acceleration suggests the worst of those fears are over. AWS is still growing at a much slower clip than its main competitors. In their earnings calls this week, Alphabet Inc.'s Google Cloud posted revenue growth of 35%, while Microsoft Corp.'s Azure came in at 33%. Despite that, Amazon retains its significant lead in terms of market share. The AWS unit delivered $10.45 billion in operating income, accounting for 60% of the company's total profit. Analysts had forecast an operating profit of just $9.15 billion. Meanwhile, AWS's operating margin was 38%, its widest since 2014 and well ahead of Google Cloud's 17%. In a conference call with analysts, Amazon Chief Executive Andy Jassy (pictured), who previously headed up the AWS unit, said the company's artificial intelligence services are generating billions of dollars in annualized revenue, though he didn't put a figure on that number. "I believe we have more demand than we could fulfill if we had even more capacity today," Jassy said. "I think pretty much everyone today has less capacity than they have demand for, and it's really primarily chips that are the area where companies could use more supply." Amazon is buying up as many chips as it can, though. The company's capital expenditures jumped 81% from a year ago to $22.62 billion, and the vast majority of that increase is being directed towards buying up more data center infrastructure, including Nvidia Corp.'s powerful graphics processing units, which power AI products and services. Over the last few months, AWS has launched multiple new generative AI tools and products in its cloud and e-commerce businesses, and it's also said to be working on a new version of Amazon Alexa that will incorporate generative AI. On the call, Amazon Chief Financial Officer Brian Olsavsky said the bulk of the company's capex spending is going toward technology infrastructure. Like its rivals, including Microsoft and Meta Platforms Inc., Amazon expects to accelerate its infrastructure spending in the next fiscal year. Jassy told analysts the company expects to spend $75 billion in fiscal 2024, and even more in fiscal 2025. "The increase bumps are really driven by generative AI," he said. "It is a really unusually large, maybe once-in-a-lifetime type of opportunity, and shareholders will feel good about this long term, that we're aggressively pursuing it." The other key profit driver for Amazon is its advertising business, and that also did well, with sales up 19% from a year earlier to $14.3 billion. Amazon's ad business showed the most encouraging growth out of all of its rivals in that industry, though it remains much smaller than Google's and Meta's ad units. Meta said yesterday that its ad revenue grew 18.7% year-over-year, while Google's rose 15%. Another key player in online advertising is Snap Inc., whose sales rose 15% from a year earlier. Looking forward, Amazon said it's expecting to deliver revenue of between $181.5 billion and $188.5 billion in the next quarter, which represents a growth rate of 7% to 11%. The midpoint of that range fell just short of the Street's consensus estimate of $186.2 billion. Still, investors were clearly happy enough to see the progress of AWS and the advertising business, for Amazon's stock gained more than 5% in the hours after the report. In the year to date, Amazon's shares are up 23%, just below the 27% gain in the broader Nasdaq index.

Amazon belt-tightening produces strong cloud, ecommerce results

Total third-quarter revenue increased 11% to $158.9 billion, the company said Thursday in a statement, exceeding estimates. Operating profit was $17.4 billion, demolishing the average estimate of $14.7 billion. "Amazon beat expectations in Q3 on the strength of the three pillars of its business ecommerce, advertising and cloud services," said Sky Canaves, an analyst at Emarketer.Amazon Inc. reported strong results that showed a company humming on all cylinders, a testament to its efforts to cut and reallocate costs and put the cloud computing and ecommerce giant on sounder footing. The Amazon Web Services cloud division, which suffered record low sales growth last year, continued to regain momentum during the third quarter. The online retail operation, which sputtered coming out of the pandemic, grew unit sales by double digits. So did revenue at Amazon's fast-growing advertising business. Total third-quarter revenue increased 11% to $158.9 billion, the company said Thursday in a statement, exceeding estimates. Operating profit was $17.4 billion, demolishing the average estimate of $14.7 billion. "Amazon beat expectations in Q3 on the strength of the three pillars of its business: ecommerce, advertising and cloud services," said Sky Canaves, an analyst at Emarketer. Amazon shares rose about 5% in extended trading after closing Thursday at $186.40 in New York. The stock has increased 23% this year. The results show the fruits of Chief Executive Officer Andy Jassy's years-long push to cut costs and streamline Amazon's logistics operation. That has given him room to spend heavily on the new data centers required for the boom in demand for artificial intelligence services. Speaking to analysts on a conference call after the results, Chief Financial Officer Brian Olsavsky said Amazon expects to devote a whopping $75 billion to capital expenditures in 2024, the majority of which will go toward technology infrastructure. Jassy said he expected the company to spend even more next year. The CEO called generative AI "a really unusually large, maybe once-in-a-lifetime type of opportunity. And I think our customers, the business, and our shareholders will feel good about this long term -- that we're aggressively pursuing it." Cloud unit revenue jumped 19% to $27.5 billion in the third quarter, in line with estimates. Operating income generated by the unit was $10.4 billion, exceeding analysts' average projection of $9.12 billion. "People tend to get a little uptight when Amazon talks about ramped up spending, but they've got such a great track record of spending large sums of money and getting really good returns on that," said Brian Yarbrough, an analyst at Edward D. Jones & Co. Amazon's key cloud rivals, Alphabet Inc.'s Google and Microsoft Corp., diverged sharply when they reported earnings earlier this week. Google posted quarterly cloud sales that grew more than analysts had projected, rising to $11.4 billion, a 35% increase from the year-earlier period. Microsoft, meanwhile, forecast slower quarterly cloud revenue growth, reflecting the company's struggle to bring data centers online fast enough to keep up with demand for AI services. Amazon reported revenue from the online store unit increased 7% to $61.4 billion in the period ended Sept. 30, while sales at the fast-growing advertising unit rose 19% from a year earlier to $14.3 billion. Total operating expenses rose 7.2% to $141.5 billion -- marking the seventh consecutive quarter that Amazon's revenue increased at a higher rate than costs. The company's workforce rose 3% to more than 1.55 million full- and part-time employees. The Seattle-based company also projected strong growth in the quarter ending in December. Operating income will be about $18 billion, topping analysts' average estimate of $17.5 billion. Fourth-quarter sales will be as much as $188.5 billion. Analysts, on average, projected $186.4 billion, according to data compiled by Bloomberg.

Amazon's $110 billion cloud business is sporting record profits even amid expensive the Gen AI arms race

Amazon quarterly financial results on Thursday surpassed analyst expectations, powered by strong revenue growth and record operating income in the company's $110 billion cloud-computing business, sending its stock soaring as much as 6% in after-hours trading. For the quarter, Amazon generated $1.43 in earnings per share on $158.9 billion in overall revenue, beating average analyst estimates of $1.14 per share and $157.2 billion, respectively. But it was Amazon Web Services, the company's cloud computing business that has become a major growth driver, particularly in the AI era, that really stood out in the fiscal third-quarter results. AWS operating income grew 50% year-over-year to $10.4 billion. Meanwhile, revenue in the unit rose 19% from the same period a year earlier to $27.5 billion, in line with analyst expectations. The division's operating profit margin was 38%, accelerating from 30% in the same period last year. The robust profits came even as Amazon, like its Big Tech peers, invests heavily on its own AI consumer products while also expanding its offerings of AI services and building blocks to corporate customers. But one unknown is how those profits will look as AWS' multi-billion-dollar Gen AI business -- in which sales are growing more than 100% year over year -- develops into a larger piece of the overall Amazon Web Services business, as one analyst asked Amazon CEO Andy Jassy on Thursday's earnings call. Jassy acknowledged that Amazon must invest heavily in AI infrastructure like data centers and chips before they are monetized or sold, but posited that "there are going to be very healthy margins here in the generative AI space" over time. For now, Amazon continues to ramp up capital spending overall, with a particular focus on expanding its data center network to support its more mature AWS businesses as well as Gen AI. Increased automation and robotics investments in Amazon's warehouse network are also playing a role in the bigger spending. "We really do believe that AI is going to be a big piece of what we do in the robotics network," Jassy said of the company's continued drive to automate work within its warehouses. Capital expenditures are expected to total $75 billion by the end of this year, company leaders said, meaning those investments will have increased 50% in the back half of the year from the roughly $30 billion spent in the first six months. Amazon will likely surpass that $75 billion total in 2025, Jassy told analysts on the call, potentially cutting into short-term profits in favor of what he called "a maybe once in a lifetime opportunity." "The faster we grow demand, the faster we have to invest capital," the CEO said of its Gen AI businesses. AWS' operating margin was also boosted 2 percentage points in the quarter by an accounting change related to how Amazon judges the useful life of its data centers. Another contributor to expanded margins in AWS was a "measured" pace in hiring. "Our office staff [count] is down slightly year over year," an official told analysts. Revenue in Amazon's core e-commerce business grew 8% to $61.4 billion on the back of wider selection of lower-priced goods and the company's fall sale event for Prime members. Jassy said the company continues to increase delivery speeds as it works through a multi-year restructuring of its North American warehouse network into eight regions. Last quarter, 40 million Prime customers received same-day orders at no extra cost, up more than 25% year-over-year, Jassy said.

Amazon Projects Strong Sales, Profit for Holiday Shopping Season

Operating income will be $16 billion to $20 billion in the period ending in December, the company said Thursday in a statement. Analysts, on average, projected $17.5 billion, according to data compiled by Bloomberg. Fourth-quarter sales will be as much as $188.5 billion, compared with an average estimate of $186.4 billion. "As we get into the holiday season, we're excited about what we have in store for customers," Chief Executive Officer Andy Jassy said in the statement. The cloud business, which suffered record low sales growth last year, continued to regain momentum during the third quarter. Amazon Web Services revenue jumped 19% to $27.5 billion, in line with estimates. Operating income generated by the unit was $10.4 billion, exceeding analysts' average projection of $9.12 billion. Jassy is betting heavily on the boom in generative artificial intelligence, which can create text, video and images based on simple user prompts. Having spent the last couple of years wooing Wall Street by cutting costs and streamlining Amazon's logistics operation, he is now pouring money into new data center construction to support the AI boom, even as some investors worry the payoff may take years to materialize. Amazon shares rose about 4% in extended trading after closing at $186.19 in New York. The stock had increased 23% this year through the close.

AWS tops $10B in quarterly operating profits as Jassy cites 'reacceleration' of cloud business

Amazon Web Services posted $10.4 billion in operating income in the third quarter, up 50% from a year ago, surpassing $10 billion for the first time, and accounting for more than 60% of Amazon's overall operating profits. AWS revenue rose 19% to $27.4 billion in the quarter. "We've seen significant reacceleration of AWS growth for the last four quarters," said Amazon CEO Andy Jassy on the company's earnings conference call, after Amazon's overall results topped Wall Street's expectations. Jassy said AI is playing a role in driving AWS growth, both directly and indirectly. He explained that AWS customers "are focused on new efforts again, spending energy on modernizing their infrastructure from on-premises to the cloud. This modernization enables companies to save money, innovate more quickly, and get more productivity from their scarce engineering resources." Jassy said this "also allows them to organize their data in the right architecture and environment to do generative AI at scale. It's much harder to be successful and competitive in generative AI if your data is not in the cloud." Amazon Web Services went through a leadership transition earlier this year, with longtime executive Matt Garman succeeding Adam Selipsky as CEO of the cloud unit. As Amazon founder Jeff Bezos liked to say, quarterly results are often determined by decisions made and strategies established years before. AWS operating margin, a key measure of profitability as a percentage of sales, reached a new high of 38.1% in the quarter. Google Cloud's quarterly operating margin was 17.1%, by comparison, with $1.95 billion in profits on $11.4 billion in revenue, in the most recent quarterly results for its parent company, Alphabet. Microsoft on Thursday posted a 33% increase in its revenue from Azure and other cloud services, including 12 percentage points of growth from artificial intelligence. Microsoft does not report revenue or profits specifically for its Azure cloud business, which competes with AWS and Google Cloud. On the Amazon conference call, CFO Brian Olsavsky said factors boosting the AWS margins included accelerating demand for AWS services, and a push for efficiencies and cost controls across the business, including more cautious hiring. In addition, he said, the company made a change in 2024 to extend the useful life of its servers. Amazon expects approximately $75 billion in capital expenditures in 2024, Olsavsky said, explaining that the majority of this spending will be on technology infrastructure, primarily related to AWS. Jassy said he suspects the company's capital spending to be even higher in 2025, explaining that the increase is "really driven by generative AI," and noting that he believes the investment will ultimately be worth it. "Our AI business is a multi-billion dollar business that's growing triple-digit percentages year-over-year, and it's growing three times faster at this stage of evolution than AWS," Jassy said. AWS, he added, "grew pretty fast."