Amazon's Q3 Business Preview

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It's worth noting that AWS has a larger base than its competitors, reaching $26.3 billion, which accounts for about 18% of Total Revenue, and has a high operating margin of 36%.

After seven consecutive quarters of decline, AWS rebounded again last quarter when customers were forced to cut costs in a tougher environment. The growth rate of AWS increased by 200 basis points sequentially to 19%, surpassing Google Cloud's growth of 100 basis points, which reached 29%, while Microsoft Azure slowed down by 100 basis points, also at 29%.

The ads segment, which grew 20% YoY to $12.8B, is Amazon's fastest-growing, accounting for nearly 9% of total revenue. Despite a slowdown from a 24% YoY growth, the potential of video advertising is vast, as Amazon's ecosystem and user data can offer advertisers higher returns. With Prime Video ads reaching 180M US users and expanding into live sports, Amazon is poised to capture a larger share of the US TV market, currently at 3.1%. This strategy could make Prime Video a major ad-driven revenue stream, increasing Amazon's overall ad revenue share.

Amazon's Stores Business, its top revenue driver, grew 9% in North America and 10% internationally YoY, but faces headwinds due to lower ASPs and economic uncertainty. This led to Q2 revenue missing estimates and a projected softening in Q3 demand as consumers become cautious. Despite this, Amazon is committed to enhancing customer experience through innovation, automation, and faster delivery, with over 5 billion units now reaching Prime customers the next day.

While Amazon is poised to retain its e-commerce leadership, macroeconomic challenges may persist, impacting consumer sentiment and, consequently, the company's 65% revenue contribution from this segment, affecting overall profitability.