Amazon’s third-quarter net revenue rose 11% to $158.9bn ignoring exchange rate impacts. Growth was broad-based across all divisions, with AWS growing at the fastest pace, up 19%. Within AWS, management described its generative-AI business as being multi-billion dollars in size and growing at triple-digit rates.
Operating profit grew 55% to $17.4bn, which was significantly ahead of the $14.8bn markets were expecting. This was driven fairly evenly by improvements in AWS and the ecommerce business.
Free cash flow rose from $21.4bn to $47.7bn on a trailing 12-month basis. Including leases, net debt was $46.6bn at the end of the period.
For the fourth quarter, net sales are expected to grow to between 7-11% to $181.5-188.5bn. Operating profit for the quarter is expected to grow from $13.2bn to between $16-20bn (consensus: $17.5bn).
The shares were up 6.1% in pre-market trading.
Our view
Amazon delivered a strong set of third-quarter results. Growth at Amazon’s cloud business (AWS) and e-commerce improvements both helped deliver an eyewatering uplift in profitability. Recent generative-AI print also looks very promising, and there are hopes that this can drive the next wave of growth at AWS.
The recovery story for the retail business is still providing a major tailwind for annual growth numbers. Margins have been resuscitated following the better revenue and gargantuan cost-saving efforts, including layoffs. Amazon has a dominant position in the e-commerce market, and its Prime membership ties it all together in a nice bow of recurring revenue.
In the longer term, we think the ongoing shift toward e-commerce has room to run. Management sounds confident in its ability to expand margins further by scaling up facilities and increasing the use of robotics. We like Amazon’s position and back it to help drive efficiency gains. But it’s a competitive space, and low-cost competitors remain hot at the group’s heels.
Through AWS, Amazon is also a leader in cloud services. This is arguably Amazon’s most lucrative growth driver and an area to pay close attention to. Companies rely on AWS for core IT infrastructure, and with the new wave of AI demand, computing power is the hottest commodity. Amazon’s Bedrock platform was launched earlier this year and gives access to a range of the best models from the likes of Meta, Mistral and Anthropic, along with tools to help them leverage this new technology.
The downside to all this new demand is the cost of building out enough new infrastructure to actually service it. Investment is set to keep ramping up over the coming quarters, so there’s a lot of pressure for revenue to keep accelerating for all that spending to be worth it.
We're also supportive of growth in services like Prime, and the group's advertising arm. It's been impressive to see the latter continue its strong progress. Troves of data footprints and millions of customers ready and willing to click buy are a marketer's dream.
With AWS and areas like advertising, Amazon has growth drivers in place to carry it through the next cycle. With a longer-term time horizon, we think Amazon will be able to expand its leadership position. If weakness is to come, it’ll be from one of two areas - e-commerce, driven by weaker consumer conditions or an AI wave that runs out of steam. Both risks are worth monitoring.
Amazon key facts
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