Amazon (AMZN) released its third-quarter earnings report on Thursday, surpassing expectations in net sales and earnings per share (EPS) but falling short in cloud revenue. Following the announcement, the company’s shares initially rose by as much as 5% in after-hours trading, with fluctuations during the earnings call.
The standout highlight of the earnings call was the emphasis on artificial intelligence (AI). Amazon CEO Andy Jassy highlighted the enormous potential AI represents for Amazon’s cloud business, Amazon Web Services (AWS), describing it as an opportunity worth “tens of billions.” This year, AWS introduced its Bedrock AI service, designed to streamline the development of large language models. Jassy noted, “Our generative AI business is growing very, very quickly.”
In September, Amazon invested $1.25 billion in Anthropic, a competitor to OpenAI, with the potential for the investment to increase to $4 billion over time. This strategic move indicates Amazon’s commitment to harnessing the growth potential of AI.
AI offers the potential growth that AWS is seeking, as the division slightly fell short of analysts’ net sales expectations in Q3, reporting $23.06 billion, compared to Wall Street’s expectation of $23.13 billion. However, there were positive aspects, including a 12% year-over-year increase in AWS sales and a 29% growth in the division’s operating income, which reached $7 billion. Jefferies analyst Brent Thill commented that this 12% growth is “just enough to keep the goblins away.”
This year has seen a mix of cloud results from major tech players. Microsoft (MSFT) reported better-than-expected growth in its Azure cloud business, while Alphabet’s (GOOG, GOOGL) cloud growth figures disappointed.
The growth of AWS has been closely monitored in 2023, with investors showing significant interest. Amazon CFO Brian Olsavsky stated that he views AWS growth as being in a “delicate” transition rather than a complete stall during a media call on Thursday.
Amazon’s cost-cutting initiatives have been scaled back as the company focuses on expanding its customer base and monetizing its services.
Key Financial Figures:
- Net Sales: $143.08 billion (actual) versus $141.56 billion (expected)
- AWS Net Sales: $23.06 billion (actual) versus $23.13 billion (expected)
- Earnings Per Share: $0.94 (actual) versus $0.58 (expected)
- Operating Margin: 7.8% (actual) versus 5.46% (expected)
- Q4 Net Sales Outlook: $160-167 billion (actual) versus $166.57 billion (expected)
Looking ahead, Amazon’s increasing operating margins, which showed a 32% rise between Q1 and Q2 and performed notably well in Q3, suggest that the company’s post-pandemic efficiency efforts are yielding positive results. Historically, when Amazon’s operating margins rise for two or more consecutive quarters, the company’s shares tend to appreciate significantly, underscoring the importance of these metrics.
