The News: Amazon announced Q3 earnings earlier this week, and the results highlighted strong growth in the cloud unit. For the full earning press release, click here.
Amazon’s Q3 Earnings, Q4 Projections, and AWS Growth
Analyst Take: Amazon reported third quarter (Q3) earnings and revenue on Thursday that sailed past analysts’ estimates. The stock climbed in extended trading. By the numbers:
- Earnings per share: $0.94 versus $0.58 expected by LSEG, formerly known as Refinitiv.
- Revenue: $143.1 billion versus $141.4 billion expected by LSEG.
Investors are also following these segment numbers:
- Amazon Web Services (AWS): $23.1 billion versus $23.2 billion in expected revenue, according to StreetAccount.
- Advertising: $12.1 billion versus $11.6 billion in expected revenue, according to StreetAccount.
In the fast-paced world of e-commerce and tech giants, Amazon’s recent announcement regarding its Q4 projections has generated considerable interest, especially when the earnings announcements came hot on the heels of Microsoft and Google also announcing earnings this week.
The company expects sales during the crucial holiday season to be in the range of $160 billion to $167 billion, with a midpoint estimate of $163.5 billion. This projection represents a noteworthy 9.6% growth compared with the previous year’s Q4 revenue of $149.2 billion. The key takeaway is that the US consumer is remarkably resilient.
Amazon’s Q3 performance, which saw a 13% increase in revenue, hints at the company’s accelerating momentum after navigating a challenging 2022 marked by surging inflation and rising interest rates. Notably, the business landscape has witnessed Amazon’s strategic shift toward cost-cutting measures over the past year. This transformation has been prompted by the realization that the company’s expansion during the pandemic might have been overly aggressive.
Under the leadership of CEO Andy Jassy, who took the reins from founder Jeff Bezos in mid-2021, Amazon has executed substantial cost-cutting initiatives. These efforts have yielded positive results, as evidenced by Jassy’s statement: “We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly.”
Amazon’s core e-commerce business has also shown resilience, with a 7% year-over-year (YoY) growth in sales, following a 4% increase in the previous quarter. The positive performance was further bolstered by the success of this year’s Prime Day promotion in July, which Amazon hailed as its biggest ever sale.
One significant highlight in Amazon’s financial report is the remarkable tripling of net income to $9.9 billion in Q3. This surge in profits can be attributed in part to a pre-tax valuation gain of $1.2 billion from the company’s investment in the electric car manufacturer, Rivian.
Amazon’s stock experienced a rollercoaster week largely in response to earnings reports from tech giants Alphabet and Meta, both of which exceeded expectations but led to a selloff of their shares. Concerns surrounding Google Cloud’s revenue and cautionary comments from Meta regarding the ad market in light of geopolitical tensions in the Middle East contributed to this market reaction.
Nonetheless, digital advertising remains a bright spot for Amazon, with ad revenue surging by an impressive 26% YoY, outpacing competitors such as Google and Facebook. This growth reflects the increasing investments from third-party sellers and large brands in Amazon’s advertising platform.
AWS
In the cloud computing sector, AWS grew 12% in Q3. While substantial, it was notably slower than Microsoft’s Azure cloud business, which experienced a remarkable 29% rise in the latest earnings, surpassing market expectations. Additionally, Google Cloud achieved a growth rate of 22.5% during the same period.
Despite AWS’s size advantage over Microsoft and Google in the cloud business, Amazon is perceived as trailing in the AI race. Microsoft has taken the lead in this arena with its investments in OpenAI and a strong focus on serving major clients who already utilize its services.
In an effort to catch up, Amazon has taken strategic steps, including a September deal to invest up to $4 billion in Anthropic, a chatbot-maker. Additionally, Amazon has rolled out its Bedrock AI service, which has garnered thousands of customers. Notably, Amazon has secured major partnerships in the current quarter, which are expected to play a pivotal role in driving growth in the upcoming quarters.
Although AWS maintains its leadership position ahead of Microsoft Azure and Google Cloud, this growth rate is lower compared with its competitors. Microsoft reported a 29% jump in Azure revenue, while Google Cloud expanded by 22%. Amazon’s CFO, Brian Olsavsky, noted that some “cost optimization” from customers had slowed down but mentioned an increase in new workloads.
AWS also launched the AWS European Sovereign Cloud this week to meet European data sovereignty demands. This initiative offers specialized cloud services exclusively within the European Union (EU) to comply with data localization regulations such as General Data Protection Regulation (GDPR). AWS aims to bridge the gap between local data sovereignty and global cloud capabilities, potentially setting a precedent for other providers to create localized, secure cloud solutions. This move reinforces AWS’s commitment to regional compliance and security needs, leveraging its established security frameworks such as the AWS Nitro System. As competitors respond, it could lead to a more flexible global cloud infrastructure landscape. We expect this announcement to accelerate revenue growth in coming quarters as European customers increase their pace of cloud adoption based on this capability.
Looking Ahead
Amazon’s Q4 projections and its ongoing cost-cutting strategies have provided valuable insights into the company’s financial health and strategic direction. As the holiday season approaches, all eyes will be on Amazon to see if it can meet or exceed its revenue expectations and maintain its position as a dominant force in the e-commerce and tech industries.
As for AWS, 12% growth in Q3 while competitors such as Microsoft Azure and Google Cloud posted significant growth rates of 29% and 22.5%, respectively, is noteworthy and something to track going forward. These numbers underscore the competitive landscape in the cloud computing sector, prompting AWS to intensify its focus on emerging technologies such as AI. AWS’s strategic investments in Anthropic and the Bedrock AI service indicate a forward-looking approach to bridge the AI gap, and we expect them to reignite growth in subsequent quarters.
Moreover, the recent launch of the AWS European Sovereign Cloud aligns with the evolving demands for data sovereignty in Europe. This forward-looking move positions AWS to tap into the growing European market, driven by stringent data localization regulations. As AWS adapts to meet regional compliance and security needs, it is poised to capture new opportunities and accelerate revenue growth in the coming quarters.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Steven engages with the world’s largest technology brands to explore new operating models and how they drive innovation and competitive edge.
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
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