In recent updates, Amazon.com has reported that its cloud business is achieving stability through new partnerships. Nevertheless, it remains cautious about consumer spending as the holiday season approaches.
While the company anticipates increased revenue during the critical holiday period, it cautions that results might fall slightly short of Wall Street expectations. This follows robust third-quarter performance driven by an extensive marketing campaign and expedited delivery services.
The stock market response was notable, with Amazon’s shares experiencing after-hours fluctuations, ultimately settling with a 5% increase.
Amidst various challenges, Amazon is actively working to maintain its status as the world’s premier cloud provider and online retailer. The company has made strategic moves to bolster its cloud services, including a significant $4 billion investment in chatbot-maker Anthropic and the promotion of an AI service with a substantial user base.
Additionally, Amazon has optimized its delivery network to bring products closer to customers, ensuring faster and cost-effective order fulfillment. Despite these efforts, Amazon faces several challenges, such as cost-conscious consumers, heightened scrutiny of cloud expenses by businesses, and a September lawsuit from the U.S. Federal Trade Commission, alleging price inflation and monopolistic practices. Amazon is currently disputing these claims.
In light of these circumstances, Amazon’s revenue forecast for the holiday quarter ending December 31 ranges from $160 billion to $167 billion. Analysts polled by LSEG anticipated sales of $166.62 billion, aligning with the upper end of Amazon’s guidance.
Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, highlights the potential for a final spending surge leading into the new year. However, she cautions that a pullback is a risk worth closely monitoring.
Amazon’s fortunes are intrinsically linked with the performance of its cloud computing division, Amazon Web Services (AWS). While AWS has been a significant profit generator for Amazon, its growth rate had been decelerating in recent quarters. In contrast, rival Microsoft, the second-largest cloud provider by revenue after Amazon, exceeded Wall Street estimates as customers prepared for AI upgrades.
During a conference call with reporters, Amazon’s Chief Financial Officer, Brian Olsavsky, noted that efforts to assist customers in managing their cloud expenses had slowed. Amazon’s CEO, Andy Jassy, reported that AWS was intensifying deal-making activities, including substantial expansions with existing clients and attracting new customers through AI offerings.
Jassy affirmed, «Our AWS growth continues to stabilize.»
In the third quarter, AWS generated $23.1 billion in revenue, closely aligning with analysts’ expectations of $23.09 billion.
Amazon’s overall third-quarter revenue increased by 13% to $143.1 billion, surpassing Wall Street estimates of $141.41 billion, according to LSEG data. Net income also saw substantial growth, reaching $9.9 billion in the third quarter, compared to $2.87 billion from the previous year.
CFO Olsavsky highlighted strong demand in sales categories such as beauty and health. However, consumers continued to exercise caution regarding pricing, seeking deals and economizing where possible.
While abating inflation contributed to reduced transportation costs, fuel expenses offset some of those savings.
Amazon’s successful initiatives include the third-quarter shopping event known as Prime Day, which achieved record-breaking sales figures, followed by an October holiday promotion period that marked the largest kickoff to date.
Sales in Amazon’s North America segment increased by 11% to nearly $88 billion in the third quarter, with the business in that region reporting a $4.3 billion operating profit, a significant turnaround from an operating loss in the previous year.
Amazon has been diligent in cost-cutting efforts, having announced plans for approximately 27,000 layoffs, equivalent to about 9% of its workforce, last year. Subsequently, it has continued to implement role reductions, particularly in Amazon Fresh stores.
Amazon’s same-day delivery services have played a crucial role in boosting margins by encouraging customers to place more frequent and larger orders. The retailer has made substantial investments in expanding this service to more locations in recent years.
