Amazon managed to top sales estimates with Q3 results released after the bell in the US on Thursday, but the Q4 guide had the potential to disappoint investors who, on the off chance you haven’t noticed, aren’t in a forgiving mood.
Revenue of $143.08 billion for last quarter was better than the $141.6 billion consensus expected and exceeded the midpoint of the Q3 guide as initially communicated during last quarter’s results.
Top-line growth of 12.6% was the briskest in a year and marked the third straight quarter during which the pace of YoY sales growth picked up.
Amazon said sales should be between $160 billion and $167 billion for Q4. Analysts are looking for $166.57 billion. So, notwithstanding the very real potential for Amazon to set a low bar then clear it, the midpoint is below consensus as it stood headed into Thursday’s report.
Andy Jassy called Q3 a good quarter. “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,” he said.
I’m not sure the market will be enamored with AWS growth of 12%. Investors punished Alphabet for a small miss in what, as of now, is still a mostly inconsequential cloud business for the company. AWS is the furthest thing from inconsequential for Amazon, and the Street wanted a better showing. Consensus expected 12.4% AWS growth. Net sales were $23.06 billion against estimates for $23.13 billion.
On the bright side (and this might be a mitigating factor), AWS operating income of nearly $7 billion counted as a big beat. AWS is, of course, Amazon’s profit engine. In addition, Jassy’s cost-cutting push is paying off and showing up. Spending on sales and marketing actually dropped. That’s rare. In fact, I can’t see any other instance of it, although I’ll admit I didn’t go back very far in the filings.
Everything else looked fine, but when you’re talking about Amazon, all that matters is the current-quarter revenue guide and AWS growth. Both of those were soft. It’d be impressive if Amazon can rally in an unforgiving earnings season when the only two things the market cares about from the company came up a little short.
Net income included a $1.2 billion gain on the Rivian investment. Operating income was $11.2 billion, well ahead of consensus, and the midpoint of the company’s Q4 guide there was pretty close to estimates.
Jassy was predictably excited about A.I. “The AWS team continues to innovate and deliver at a rapid clip, particularly in generative A.I., where the combination of our custom chips, Amazon Bedrock being the easiest and most flexible way to build and deploy generative A.I. applications, and our coding companion allowing enterprises to have the equivalent of an experienced engineer who understands all of their proprietary code is driving momentum with customers,” he said, before naming a half-dozen companies currently running generative A.I. workloads on AWS.
That’s all fine and good but, again, I wonder if it’s enough. You really (really) want a robust current-quarter revenue guide from Amazon and an impressive read on AWS growth. The company gave the market neither, or at least not if the benchmark for “robust” and “impressive” is consensus estimates.
