Amazon posts strong revenue, profit on Web sales, cost cuts
AMAZON.COM reported revenue and profit that topped analysts’ estimates, buoyed by rising sales in its retail unit and significant cost-cutting.
While sales growth in the cloud computing unit fell just short of projections, chief executive officer Andy Jassy reassured investors that the business had stabilised and said the company inked a number of deals that took effect early in the current quarter. The shares gained about 3.5 per cent in extended trading on his comments.
Jassy has been winning over Wall Street this year with deep cost cuts and a focus on boosting profit. Under his guidance, the Seattle-based company has become increasingly reliant on services that tend to make more money than the original business of hawking goods online, including advertising, logistics services for independent merchants and renting computing power to corporations.
“The retail giant’s slowdown last year appears to be in the rear-view mirror as it has embarked on significant cost-cutting throughout this year and sharpened its focus on key growth areas, such as its high-margin online marketplace – and the services it can sell to those sellers – and advertising,” said Zak Stambor, an analyst at Insider Intelligence.
Sales for its cloud unit, Amazon Web Services (AWS), increased 12 per cent to US$23.1 billion. The business’s operating income of US$6.98 billion was about US$1.3 billion more than analysts expected. AWS, which tends to account for more profit than the rest of the company combined, reported the highest operating margin since the first quarter of 2022.
Chief financial officer Brian Olsavsky stopped short of saying that AWS growth has bottomed out, explaining that the division is seeing a number of cross currents. But it may be a sign the pullback in corporate spending on cloud services is not over yet, and a potential worry for investors.
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The results provided more evidence of Jassy’s cost-cutting effort, which has scrutinised expenses across the company. Amazon’s spending on sales and marketing declined, a first since at least 2015. The growth in spending on technology and infrastructure, a category that includes the salaries of software engineers and costs for AWS servers, rose by just 8.8 per cent, about a quarter of the rate of a year ago.
Third-quarter revenue gained 13 per cent to US$143.1 billion, Amazon said on Thursday (Oct 26). Analysts, on average, estimated US$141.6 billion, according to data compiled by Bloomberg. Operating income increased to US$11.2 billion, compared with US$2.5 billion in the period a year ago. Analysts, on average, estimated US$7.71 billion.
The company’s central online stores also produced a better-than-expected performance. The unit generated US$57.3 billion, a 7 per cent increase from the period a year earlier. The quarter included Prime Day, Amazon’s mid-summer shopping bonanza. Advertising sales jumped 26 per cent to US$12 billion, also topping estimates.
Amazon projected sales of US$160 billion to US$167 billion in the quarter ending in December, compared with analysts’ average estimate of US$166.6 billion, according to data compiled by Bloomberg. Operating income will be US$7 billion to US$11 billion in the period. Analysts, on average, projected US$8.71 billion.
While Olsavsky said the consumer is “spending money, but cautious and deal-driven”, Stambor, of Insider Intelligence, was more optimistic. Amazon’s “successful Prime Big Deal Days event – which Insider Intelligence believes generated US$5.9 billion in US retail e-commerce sales, an 8 per cent gain year over year – give it strong momentum as we head into the heart of the holiday season”, Stambor said.
Amazon’s stock closed at US$119.57 in New York and has jumped 43 per cent this year. BLOOMBERG
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