AMAZON.COM reported strong results that showed a company humming on all cylinders, a testament to its efforts to cut and reallocate costs and put the cloud computing and e-commerce giant on sounder footing.
The Amazon Web Services cloud division, which suffered record low sales growth last year, continued to regain momentum during the third quarter. The online retail operation, which sputtered coming out of the pandemic, grew unit sales by double digits. So did revenue at Amazon’s fast-growing advertising business.
Total third-quarter revenue increased 11 per cent to US$158.9 billion, the company said on Thursday (Oct 31), exceeding estimates. Operating profit was US$17.4 billion, demolishing the average estimate of US$14.7 billion.
“Amazon beat expectations in Q3 on the strength of the three pillars of its business: e-commerce, advertising and cloud services,” said Sky Canaves, an analyst at Emarketer.
Amazon shares rose about 6 per cent in pre-market trading on Friday, after closing Thursday at US$186.40 in New York. The stock has increased 23 per cent this year.
The results show the fruits of chief executive officer Andy Jassy’s years-long push to cut costs and streamline Amazon’s logistics operation. That has given him room to spend heavily on the new data centres required for the boom in demand for artificial-intelligence (AI) services.
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Speaking to analysts on a conference call after the results, chief financial officer Brian Olsavsky said Amazon expects to devote a whopping US$75 billion to capital expenditures in 2024, the majority of which will go towards technology infrastructure.
The chief executive added that he expected the company to spend even more next year.
Jassy called generative AI “a really unusually large, maybe once-in-a-lifetime type of opportunity. And I think our customers, the business, and our shareholders will feel good about this long term – that we’re aggressively pursuing it”.
Cloud unit revenue jumped 19 per cent to US$27.5 billion in the third quarter, in line with estimates. Operating income generated by the unit was US$10.4 billion, exceeding analysts’ average projection of US$9.12 billion.
“People tend to get a little uptight when Amazon talks about ramped up spending, but they’ve got such a great track record of spending large sums of money and getting really good returns on that,” said Brian Yarbrough, an analyst at Edward D Jones.
Amazon’s key cloud rivals, Alphabet’s Google and Microsoft, diverged sharply when they reported earnings earlier this week.
Google posted quarterly cloud sales that grew more than analysts had projected, rising to US$11.4 billion, a 35 per cent increase from the year-earlier period.
Microsoft, meanwhile, forecast slower quarterly cloud revenue growth, reflecting the company’s struggle to bring data centres online fast enough to keep up with demand for AI services.
Amazon reported revenue from the online store unit increased 7 per cent to US$61.4 billion in the period ended Sep 30, while sales at the fast-growing advertising unit rose 19 per cent from a year earlier to US$14.3 billion.
Total operating expenses rose 7.2 per cent to US$141.5 billion – marking the seventh consecutive quarter that Amazon’s revenue increased at a higher rate than costs. The company’s workforce rose 3 per cent to more than 1.55 million full and part-time employees.
The Seattle-based company also projected strong growth in the quarter ending in December. Operating income will be about US$18 billion, topping analysts’ average estimate of US$17.5 billion. Fourth-quarter sales will be as much as US$188.5 billion.
Analysts, on average, projected US$186.4 billion, Bloomberg data showed. BLOOMBERG
