[Overseas Stocks Spotlight] "Amazon to Continue Strong E-commerce Demand in Q4"

[Asia Economy Reporter Eunmo Koo] Amazon (Amazon·AMZN US) posted third-quarter results this year that exceeded market consensus in both revenue and profit. E-commerce demand is expected to remain strong in the fourth quarter, with attention also drawn to cloud and advertising sectors.

Amazon's third-quarter revenue this year increased by 37% compared to the same period last year, reaching $96.1 billion, surpassing consensus by 3.6%. Earnings per share (EPS) rose 192% to $12.37, exceeding the consensus of $7.41 by 67%. Notably, the third-party seller services (3P) and other (advertising) segments significantly outperformed market expectations, driving better-than-expected results. Additionally, subscription services (Prime membership) and online direct sales (1P) segments also exceeded consensus. Amazon Web Services (AWS) recorded a revenue growth rate of 29%, similar to the second quarter, meeting expectations, while offline stores were the only segment to fall short of consensus.

Meanwhile, the operating margin improved by 193 basis points year-over-year to 6.4%. The international segment increased by 372 basis points, and AWS by 534 basis points, driving growth. Particularly, the international segment achieved a historic first-quarter profit turnaround in Q2 due to improved operating leverage effects from a surge in e-commerce demand.

E-commerce demand is expected to remain strong in the fourth quarter, centered on the year-end shopping season. On the 31st, Han Joo-gi, a researcher at Samsung Securities, stated in a report, “Amazon also provided a better-than-expected fourth-quarter revenue guidance (assuming a growth rate of 28.1% to 38.4% year-over-year), indicating continued strong demand.” He added, “Especially, the third-party sellers’ sales during Prime Day held on October 13-14 increased by 60% compared to the same period last year, which raises expectations for top-line growth in the fourth quarter.” He further predicted, “With the continuation of year-end shopping season demand, record-breaking performance is expected.”

Attention should also be paid to cloud and advertising. AWS’s third-quarter revenue growth rate was 29.0% year-over-year, the same as in the second quarter. The researcher analyzed, “It is estimated that some delayed corporate IT spending in the second quarter is gradually recovering,” adding, “Since similar recovery patterns have been confirmed in Azure and GCP, it is necessary to focus on the possibility of a rebound in the fourth quarter and 2021.” Furthermore, “The other segment (advertising) recorded a growth rate of 50.5% in the third quarter,” he added, “which is also attributed to the recovery in advertising spending and is likely to continue into the fourth quarter.”