Amazon Beats Earnings Expectations (But Misses on Cloud Revenue)

Amazon (AMZN) released its third-quarter earnings report on Thursday, surpassing predictions for net sales and earnings per share (EPS).

Even though Amazon beats earnings expectations, however, the tech giant fell short in cloud revenue.

Following the earnings disclosure, Amazon’s stock experienced a 5% uptick in after-hours trading, with further fluctuations during the earnings conference call.

The standout topic during the call was artificial intelligence (AI). CEO Andy Jassy underscored AI as an immense opportunity, potentially worth “tens of billions,” for Amazon’s cloud division, Amazon Web Services (AWS).

AWS recently introduced the Bedrock AI service, streamlining the development of large language models.

Jassy commented, “Our generative AI business is growing very, very quickly.”

In September, Amazon invested $1.25 billion in Anthropic, a direct competitor of Open AI, with the possibility of increasing the investment to $4 billion in the future.

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AWS is pinning its growth hopes on AI, as the third quarter of 2023 saw it slightly miss net sales expectations, recording $23.06 billion compared to the anticipated $23.13 billion.

Nonetheless, there were silver linings. AWS reported a 12% year-over-year increase in sales, with the division’s operating income reaching $7 billion, reflecting a 29% surge from the previous year.

Jefferies analyst Brent Thill noted that the 12% growth is sufficient to maintain investor confidence.

The cloud computing sector has been under scrutiny recently, particularly AWS. JPMorgan’s Doug Anmuth mentioned that it has received the most attention from investors.

During a media briefing, Amazon CFO Brian Olsavsky explained that AWS’s growth is in a “delicate” phase rather than having come to a complete halt.

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As part of its strategy, Amazon is slowing down its cost-cutting initiatives and focusing on expanding its customer base while capitalizing on service monetization.

Key figures from Amazon’s earnings report, juxtaposed with Bloomberg’s analysts’ estimates, are as follows:

Net Sales$143.08 billion 🚀 $141.56 billion
AWS Net Sales$23.06 billion ❌$23.13 billion
Earnings per Share$0.94 🚀 $0.58
Operating Margin7.8% 🚀 5.46%
Q4 Net Sales$160-167 billion ❌$166.57 billion

As of now, analyst recommendations for Amazon comprise 63 Buy ratings, two Hold ratings, and no Sell ratings.

Of note, Amazon’s operating margins have shown improvement, surging by 32% between the first and second quarters of this year and registering a noteworthy beat in the third quarter.

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This suggests that Amazon’s efforts to enhance post-pandemic operational efficiency are yielding positive results.

Wedbush’s Scott Devitt noted, “We then compared share price returns during those periods, and found that on average, Amazon shares have appreciated 84% when operating margins are rising versus just 1% when operating margins are declining.”

(Source: Yahoo Finance)

Pavlos Written by:

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