Amazon's Q3 Profit and Sales Beat Estimates

By Greg Bensinger and Deborah Mary Sophia
(Reuters) – Amazon.com reported third-quarter profit and sales exceeding Wall Street forecasts on Thursday, boosted by favorable retail sales. This led to a 5.7% rise in its shares after hours.

The company anticipates strong performance in the holiday quarter, its biggest season, driven by faster shipping and a range of lower-cost items. Analysts suggest Amazon’s positive results may indicate a stronger-than-expected holiday shopping season for retailers, after months of concerns over low growth in holiday sales.

Three months prior, Amazon's executives noted consumer caution in spending and a trend toward more affordable options. In the quarter ending September 30, Amazon's retail sales improved by 7%, hitting $61.41 billion. The after-hours stock price increase offset earlier declines during regular trading hours.

Gil Luria, head of technology research at D.A. Davidson, highlighted the unexpected improvement in margins as particularly significant. Investors previously worried about the retail sector’s ability to sustain margins, yet Amazon managed to grow them instead.

The operating margin for Amazon’s international segment shot up to 3.6% this third quarter from 0.9% in the previous quarter. North America’s margin slightly rose to 5.9% from 5.6%.

In the face of intense competition from discount retailers like Shein and Temu, Amazon aims to increase capital expenditures for long-term projects, particularly in artificial intelligence. CEO Andy Jassy described this AI push as a “once-in-a-lifetime opportunity,” with capital spending projected to escalate to around $75 billion this year, up from $48.4 billion last year.

Amazon Web Services (AWS), the company’s cloud segment, saw sales increase by 19% to $27.5 billion—marking the fastest growth in seven quarters. Although this growth aligned with estimates, some analysts had anticipated higher numbers around 21-22%.

Competing cloud players, like Microsoft’s Azure and Google Cloud, also reported rising quarterly revenues recently. Some observers noted that Google Cloud has been gaining market share from AWS in recent quarters.

Conversely, Amazon has been successfully taking advertising market share from Google. Amazon’s advertising revenue climbed 19% to $14.3 billion, also narrowly exceeding expectations, fueled by ad placements on shopping carts in physical stores and on its Prime Video streaming service.

Amazon anticipates fourth-quarter revenue in the range of $185 billion, which narrowly misses the average analyst estimate of $186.16 billion. Analysts believe Amazon is being conservative due to the unpredictability of the holiday season.

Prior to the earnings report, shares closed down by 3.3%. However, the stock had climbed nearly 23% year-to-date, outpacing the broader market’s nearly 20% rise.

The Seattle-based company reported a 9% sales increase in its North America segment, totaling $95.5 billion in Q3. Overall revenue reached $158.9 billion, above the $157.20 billion estimated by analysts.

Net income soared by 55%, totaling $15.3 billion compared to $9.9 billion in 2023, resulting in earnings of $1.43 per share, surpassing the expected $1.14.

In recent months, Jassy has implemented job cuts and plans to enforce a five-day in-office work policy beginning in January. This decision has drawn criticism from employees, including over 500 who expressed their discontent in a letter directed towards the AWS CEO.

Furthermore, Amazon has discontinued a long-standing practice of holding separate earnings call sessions with the chief financial officer and media, reducing its transparency.