Amazon’s Record-Breaking Q3 Performance Sends Stock Skyrocketing 11%

Amazon exceeded expectations for its third-quarter earnings, reporting $180.2 billion in revenue, a 13% increase year-over-year, and earnings per share of $1.95, up from $1.43 in the previous year.

• Net income rose to $21.2 billion from $15.3 billion in the same period last year.
• Wall Street had anticipated $177.7 billion in revenue and earnings per share of $1.56.

Following the earnings release, Amazon’s shares surged more than 11% in after-hours trading. This growth comes after a period where the company’s stock performance lagged behind competitors such as Microsoft and Google.

Investors were particularly pleased with the re-acceleration of Amazon’s cloud computing division, Amazon Web Services (AWS), which reported $33 billion in sales, a 20% increase year-over-year, surpassing analyst estimates. Amazon CEO Andy Jassy noted that AWS is experiencing growth rates not seen since 2022.

Jassy highlighted the strong demand for artificial intelligence (AI) and core infrastructure services, emphasizing the company’s focus on expanding capacity by adding over 3.8 gigawatts in the past year.

The growth of AWS is crucial for Amazon to counter the perception on Wall Street that its cloud business is trailing behind competitors in the AI space, such as Microsoft and Google.

• Amazon, along with other major cloud providers, is investing heavily in capital expenditures to support AI initiatives. Amazon has announced plans to increase capital expenditures to over $100 billion by 2025.
• Most of Amazon’s operating profits come from AWS, which generated $11.4 billion in operating income in the third quarter, accounting for more than half of Amazon’s total operating income.
• Last week, AWS experienced a significant outage that impacted several major websites and services. The outage was attributed to an internal issue within the cloud infrastructure.

In the third quarter, Amazon’s overall operating income remained flat at $17.4 billion compared to the previous year. The company had projected operating income in the range of $15.5 billion to $20.5 billion.

Amazon disclosed two special charges affecting its Q3 operating income:

• A $2.5 billion charge related to a recent settlement with the Federal Trade Commission regarding Prime memberships.
• Approximately $1.8 billion in estimated severance costs associated with a significant corporate layoff of 14,000 employees announced earlier in the week.

The workforce reduction is part of Amazon’s efforts to streamline operations and improve efficiency in the era of artificial intelligence, as emphasized by Jassy.

• Reports suggest that the total number of layoffs could reach up to 30,000 employees as the company continues to implement cutbacks into the next year.
• Jassy mentioned in a company-wide memo that Amazon’s corporate workforce will shrink in the coming years as generative AI technologies become more prevalent.

Amazon’s online store sales reached $67.4 billion, a 10% increase, with this figure including revenue from the annual Prime Day sales event held from July 8-11.

• Analysts are monitoring the impact of tariffs on Amazon’s retail business, which remains a significant portion of its overall revenue.
• In its Q1 earnings report earlier in the year, Amazon identified “tariff and trade policies” as factors contributing to uncertainty in its results, alongside risks such as inflation, interest rates, and regional labor market constraints.

Further details from the second-quarter earnings report include:

Advertising: Amazon’s advertising business generated $17.7 billion in revenue, a 24% increase from the previous year, surpassing expectations. Advertising, along with AWS, is a key revenue driver for Amazon.

Third-party seller services: Revenue from third-party seller services rose by 12% to $42.5 billion.

Shipping costs: Amazon’s shipping expenses totaled $25.4 billion in Q3, an 8% increase.

Physical stores: Revenue from physical stores, including Whole Foods and other Amazon grocery outlets, reached $5.6 billion, reflecting a 7% growth.

Headcount: Amazon’s workforce comprises 1.57 million employees, marking a 2% increase year-over-year, excluding seasonal and contract workers.

Prime: Subscription services revenue, which includes Prime memberships, amounted to $12.6 billion, up 11%.

Guidance: For Q4, Amazon forecasts sales between $206 billion and $213 billion. Operating income is projected to range from $21 billion to $26 billion, compared to $21.2 billion in the same period last year.