Amazon approaches $200 following strong results, guidance
2min read Amazon (AMZN) delivered a strong Q3, beating Wall Street expectations on both EPS and revenue. The company posted earnings per share of $1.43, exceeding the analyst consensus of $1.14, and generated revenue of $158.9 billion, surpassing estimates of $157.2 billion. This performance was bolstered by robust operating income, which reached $17.4 billion, a substantial 56% increase year-over-year, and was higher than the expected $14.75 billion. Amazon's guidance for Q4 also outshone market expectations, with projected operating income of $16-20 billion against analysts’ expectations of $17 billion.
A key highlight was Amazon Web Services (AWS), which reported 19% year-over-year growth in sales to $27.5 billion. Although in line with estimates, AWS’s growth rate slightly lagged competitors Google Cloud and Microsoft Azure, both of which showed quarter-over-quarter acceleration in cloud growth. CEO Andy Jassy acknowledged strong cloud demand, especially driven by the need for AI capabilities, and noted that AWS’s AI-focused offerings have been rapidly evolving to keep up with demand, including increased production of Amazon’s custom AI chips, Trainium and Inferentia.
Retail sales showed resilience, with online stores generating $61.4 billion in revenue, marking a 7.2% increase year-over-year and beating analyst expectations of $59.6 billion. Physical stores also performed well, with revenue rising 5.4% to $5.2 billion. Amazon continues to enhance its retail efficiency with new AI-driven warehouse automation efforts, including the use of robots in a new Shreveport, Louisiana facility, which promises further operational improvements.
The advertising segment sustained its momentum, posting strong numbers that bolstered overall sales. Revenue from advertising and third-party seller services contributed to the company’s operating income growth, which was particularly strong in the North America segment with a margin increase to 5.9% from 4.9% a year earlier. International margins also improved significantly to 3.6% from -0.3% year-over-year, aided by cost control and a strong dollar.
Amazon’s Q4 guidance further reflects optimism in growth and profitability, forecasting net sales between $181.5 billion and $188.5 billion, up 7-11% year-over-year, in line with analyst estimates of $186.3 billion. The upbeat guidance for operating income, which ranges from $16 billion to $20 billion, indicates that Amazon is confident in maintaining its momentum despite economic uncertainties.
In terms of capital expenditures, Amazon is investing heavily in infrastructure, with $22.6 billion spent this quarter compared to $12.5 billion last year. This includes expanding data centers and enhancing technology for AWS and its growing AI services. Management indicated that this capex trend will continue, with total 2024 spending projected at around $75 billion, primarily to support AI-driven growth and AWS infrastructure.
Despite a positive earnings report, Amazon’s AI ambitions raised some concerns, with Jassy stating that the demand for generative AI and cloud services continues to outpace supply. Amazon’s AI business, described as growing three times faster than the cloud business at a similar stage, is a long-term focus, requiring continuous capex to meet demand. This “once in a lifetime” AI investment opportunity has resonated with investors, though it brings ongoing spending pressures.
Internationally, Amazon achieved double-digit growth, with sales up 12% to $35.9 billion, driven by successful margin expansion and operational efficiencies. However, Greater China faced challenges, and while Amazon has strong footholds globally, competition remains fierce in this market. Amazon’s ability to continue optimizing its logistics and expand AI capabilities will be crucial to retaining its competitive edge.
Overall, the report reflects Amazon’s impressive growth across segments, driven by resilient retail sales, growing cloud adoption, and high-margin advertising revenue. Shares moved up around 5% after hours as investors welcomed the results, yet the heightened capex and global market pressures pose questions on how Amazon will balance growth and spending moving forward.
