Amazon's third quarter net sales rose 11% year-on-year, reaching $143.1bn and ignoring the effect of exchange rates. North America sales were up 11%, with International sales also rising 11%.
Amazon Web Services sales were up 12%, broadly as expected. Advertising saw growth of 25%.
A significant increase in North American retail and growth in AWS meant operating profit jumped from $2.5bn last year to $11.2bn. Performance was better than expected.
On a trailing twelve month basis, free cash flow was $21.4bn, compared to a $19.7bn outflow for the same period last year. The group had net cash of $3.1bn as at the end of September.
Net sales are expected to be between $160 - $167bn next quarter.
Amazon shares rose 5.5% in pre-market trading.
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Our view
Amazon Web Services (AWS) is Amazon's not-so-secret weapon. Its potential is huge.
As companies increasingly harness new technologies and infrastructure, there are AWS products poised and waiting to be adopted. There are some grumblings about the likelihood of a sustained reacceleration in AWS. But Amazon bulls will argue that while AWS doesn't immediately benefit from booming demand for language-based models like those from OpenAI, it does stand to gain from other apps using things like Stability AI, the deep learning, text-to-image model.
Ultimately, we think AWS' position in the AI and cloud stack is a positive one, and the susbstantial investment announced in AWS' generative AI products speaks volumes to the expected pipeline of demand.
We're also supportive of growth in services, like Prime, and the group's advertising arm. It's been impressive to see the latter making progress. Troves of data footprints and millions of customers ready and willing to click buy are a marketer's dream.
But for all these areas, Amazon's core retail division still carries a lot of weight. And the picture here is improving. Margins buckled in recent memory as consumer spending slowed compared to the days of lockdown. But gargantuan cost saving efforts, including lay-offs, coupled with a rebound in spending, has seen profits in this part of the business start to hold their own again.
But things are far from solved. The consumer environment remains very tricky indeed and this could yet worsen, so this will be something to monitor. For now, we're cautiously optimistic the festive trading season will be strong, which could mean a bumper quarter. US consumer spending's continuing to rise, meaning for now, higher interest rates aren't hampering things.
Digging down under the hood and it's nice to see free cash flowing through the business. This helps support investment for growth.
While the valuation has come down some way from its headiest days, Amazon has still seen a substantial uplift since the start of the year. We think that's largely a reflection of the prospects for AWS, and there's no denying that, plus other services areas, have huge growth potential. But with the e-commerce arm under pressure, and a level of uncertainty in near-term cloud demand, there could be rocky times ahead.
Amazon key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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