Amazon ( AMZN ) reported its third-quarter earnings on Thursday, beating expectations on net sales and EPS but missing its cloud revenue.
Amazon shares rose as much as 5% in after-hours trading, but those gains were dissipated as investors digested the report.
Amazon’s cloud business, Amazon Web Services, or AWS, came in at $23.06 billion versus Wall Street’s $23.13 billion in net sales, slightly below analysts’ expectations.
However, there were silver linings, as AWS sales rose 12% year-over-year and the division’s operating income also rose, coming in at $7 billion, roughly 29% more than last year.
It’s been a week of cloudy mixed results. On Tuesday, Microsoft ( MSFT ) reported better-than-expected growth in its Azure cloud business, while Alphabet’s ( GOOG , GOOGL ) cloud growth numbers disappointed.
AWS growth has been under a microscope this year, and it’s “getting more airplay with investors,” JP Morgan’s Doug Anmuth wrote ahead of earnings. In a call with media on Thursday, Amazon CFO Brian Olszowski said he doesn’t believe AWS growth has completely stalled, characterizing the cloud business as undergoing a “subtle” transition.
“We have a slow start of cost optimization work … and we’re starting to see more and more new workloads coming in,” Olszowski told reporters.
Here are the key numbers reported by Amazon, compared to analysts’ estimates compiled by Bloomberg:
Net Sales: $143.08 billion actual, $141.56 billion expected
AWS Net Sales: $23.13 billion vs. $23.06 billion expected
Stock Gains: $0.94 Actual, $0.58 Expected
Operating margin: 7.8% actual, 5.46% expected
Q4 Net Sales: $160-167 billion actual, $166.57 billion expected
Currently, analyst recommendations for Amazon come out at 63 buys, two holds and zero sells.
“We had a strong third quarter as our cost to serve and delivery speed in our Stores business took another step forward, our AWS growth continued to be steady, our advertising revenue grew strongly and overall operating income and free cash flow increased significantly.” Amazon CEO Andy Jassy said in a statement.
Looking ahead, keep an eye on those operating margins. Amazon’s operating margins are on the rise — up 32% between Q1 and Q2, and taking a significant hit in Q3 — which suggests Amazon’s post-pandemic efficiency efforts are working.
“We analyzed ten years of historical data and identified all periods in which Amazon’s operating margin increased or decreased on a fundamental basis for two or more quarters,” Wedbush’s Scott Devitt wrote ahead of earnings. “We compared stock price returns over those periods and found that, on average, Amazon stock rose 84% when operating margins rose and just 1% when operating margins fell.”
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