Amazon, the world's largest e-commerce company, delivered unexpected strong earnings by successfully defending its performance despite concerns over inflation and recession. In particular, as the growth of its previously unstable cash cow division stabilized, Amazon's stock price rose by over 5% in after-hours trading.
On the 26th (local time), Amazon announced in its earnings report that its third-quarter revenue this year reached $143.1 billion (approximately 194 trillion KRW), a 13% increase compared to the same period last year. This exceeded market expectations by about $1.3 billion. Net income for the same period was $9.9 billion, more than triple the $2.9 billion recorded in the previous year. Earnings per share also significantly surpassed market expectations of $0.58, reaching $0.94.
Amazon's strong performance was driven by its e-commerce and advertising businesses. Revenue from the core e-commerce segment grew 7% year-over-year, boosted by the 'Prime Day' event. Andy Jassy, Amazon's Chief Executive Officer (CEO), stated in a release, "The advertising business grew steadily, and delivery speeds improved in the e-commerce segment, resulting in a solid quarter." The high-margin advertising segment recorded $12 billion in revenue, a 26% increase from the previous year, surpassing market expectations of $11.6 billion.
Amazon's cash cow and key growth driver, the cloud business (AWS), showed signs of stabilization after recent sluggishness. AWS's third-quarter revenue was $23.1 billion, a 12% increase year-over-year. Net income was $6.98 billion, $1.3 billion more than market expectations. The Amazon cloud business had experienced a downturn earlier this year as companies reduced cloud demand amid the economic downturn.
Brian Olsavsky, Amazon's Chief Financial Officer (CFO), said during the post-earnings conference call, "There is a very complex flow in cloud market demand," adding, "While some corporate customers are still cutting cloud spending, new demand is also emerging." Market analysts interpret this to mean that despite better-than-expected third-quarter results, the cloud sector has not yet bottomed out.
To reduce the overexpansion during the COVID-19 pandemic, Amazon has focused on cost-cutting measures, including laying off 27,000 employees since the end of last year and restructuring its business. Bloomberg noted, "This is the first time since 2015 that Amazon has reduced its operating and marketing expenses." The growth rate of spending on technology and infrastructure, including software engineer salaries and AWS server costs, was 8.8%, only a quarter of last year's level. As a result, the operating margin reached 7.8%, the highest since the first quarter of 2021.
However, the company issued a gloomy outlook for the fourth quarter. Traditionally, the fourth quarter, which includes the Christmas and year-end holiday season, is the peak season for the e-commerce segment. Amazon set its fourth-quarter revenue guidance at $160 billion to $167 billion. The midpoint ($163.5 billion) falls short of the market's expectation of $166.6 billion.
On the day, Amazon's stock, listed on the Nasdaq, closed down 1.50% at $119.57 during regular trading hours. Following the better-than-expected earnings announcement after the market closed, the stock rose over 5% in after-hours trading as of 9:10 a.m. Korean time. Amid a rally in big tech stocks, Amazon's shares have surged 43% so far this year.
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