How Does Amazon's Earnings Report Trigger Excitement on Wall Street and Cause a Surge in Its Stock Price?
On Thursday, $Amazon(AMZN.US$ announced its third-quarter earnings. The company exceeded expectations on net sales and EPS but fell short on its cloud revenue.
Initially, the company's shares rose by 5% in after-hours trading. Later, the gains dissipated but surged again after the earnings call.
The Earnings Call
Artificial intelligence was the star of the call. CEO Andy Jassy told analysts that AI represents an opportunity worth "tens of billions" for Amazon's cloud business, Amazon Web Services (AWS). This year, AWS launched its Bedrock AI service, which streamlines the development of large language models.
Our generative AI business is growing very, very quickly," said Jassy.
AWS growth has been under a microscope this year, and it's a subject that has been "getting the most airtime with investors," JPMorgan's Doug Anmuth wrote before earnings.
In a call with media on Thursday, Amazon CFO Brian Olsavsky said that he doesn't believe AWS growth has stalled completely, instead characterizing the cloud business as in a "delicate" transition.
Amazon's Earnings
Amazon reported its Q3 earnings with revenue of $23.1 billion from Amazon Web Services and $12.1 billion from advertising, both beating expected revenue. For the Q4 sales, Amazon is predicting between $160 billion to $167 billion, with a mid-point of $163.5 billion, representing a 9.6% growth compared to last year. The revenue in Q3 jumped by 13%, indicating an acceleration in business after a difficult 2022 due to rising interest rates and inflation.
Amazon's digital advertising continues to be a bright spot, growing 26% YoY, surpassing Google's ad growth of 9% and Facebook's ad growth of 23%, while Snap's revenue rose only by 5%. However, Amazon appears to be losing some market share in the cloud industry. AWS showed growth of 12% in the quarter, compared to $Microsoft(MSFT.US$ Azure's 29% growth and $Alphabet-A(GOOGL.US$ Google Cloud's 22% growth. CFO Brian Olsavsky mentioned that the company is still experiencing some "cost optimization" from clients, but at a slower pace than before.
Over the past year, Amazon has been focused on reducing costs after realizing that it had expanded too rapidly during the pandemic. The company has laid off 27,000 employees since last autumn and abandoned some of its less profitable ventures. Andy Jassy, who took over from founder Jeff Bezos as CEO in mid-2021, stated that these cost-cutting measures are still yielding positive results.
We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly," Jassy said in a statement.
What Analysts Say
The retail giant's slowdown last year appears to be in the rearview mirror as it has embarked on significant cost-cutting throughout this year and sharpened its focus on key growth areas," Zak Sambor, a senior analyst at Insider Intelligence, said in a note Thursday afternoon after Amazon's earnings results were posted.
We analyzed ten years of historical data and identified all periods when Amazon's operating margin either increased or decreased on a basis for two or more consecutive quarters," wrote Wedbush's Scott Devitt before earnings. "We then compared share price returns during those periods, and found that on average, Amazon shares have appreciated 84% when operating margins are rising versus just 1% when operating margins are declining."
Currently, analyst recommendations for Amazon come out to 63 Buys, 2 Holds, and 0 Sells.
Source: Yahoo Finance, CNBC, CNN
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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