The Amazon Web Services cloud division, which suffered record low sales growth last year, continued to regain momentum during the third quarter. The online retail operation, which sputtered coming out of the pandemic, grew unit sales by double digits. So did revenue at Amazon’s fast-growing advertising business.
Total third-quarter revenue increased 11% to $158.9 billion, the company said Thursday in a statement, exceeding estimates. Operating profit was $17.4 billion, demolishing the average estimate of $14.7 billion.
“Amazon beat expectations in Q3 on the strength of the three pillars of its business: ecommerce, advertising and cloud services,” said Sky Canaves, an analyst at Emarketer.
Amazon shares rose about 5% in extended trading after closing Thursday at $186.40 in New York. The stock has increased 23% this year.
The results show the fruits of Chief Executive Officer Andy Jassy’s years-long push to cut costs and streamline Amazon’s logistics operation. That has given him room to spend heavily on the new data centers required for the boom in demand for artificial intelligence services. Speaking to analysts on a conference call after the results, Chief Financial Officer Brian Olsavsky said Amazon expects to devote a whopping $75 billion to capital expenditures in 2024, the majority of which will go toward technology infrastructure. Jassy said he expected the company to spend even more next year.
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The CEO called generative AI “a really unusually large, maybe once-in-a-lifetime type of opportunity. And I think our customers, the business, and our shareholders will feel good about this long term — that we’re aggressively pursuing it.”Cloud unit revenue jumped 19% to $27.5 billion in the third quarter, in line with estimates. Operating income generated by the unit was $10.4 billion, exceeding analysts’ average projection of $9.12 billion.
“People tend to get a little uptight when Amazon talks about ramped up spending, but they’ve got such a great track record of spending large sums of money and getting really good returns on that,” said Brian Yarbrough, an analyst at Edward D. Jones & Co.
Amazon’s key cloud rivals, Alphabet Inc.’s Google and Microsoft Corp., diverged sharply when they reported earnings earlier this week. Google posted quarterly cloud sales that grew more than analysts had projected, rising to $11.4 billion, a 35% increase from the year-earlier period. Microsoft, meanwhile, forecast slower quarterly cloud revenue growth, reflecting the company’s struggle to bring data centers online fast enough to keep up with demand for AI services.
Amazon reported revenue from the online store unit increased 7% to $61.4 billion in the period ended Sept. 30, while sales at the fast-growing advertising unit rose 19% from a year earlier to $14.3 billion.
Total operating expenses rose 7.2% to $141.5 billion — marking the seventh consecutive quarter that Amazon’s revenue increased at a higher rate than costs. The company’s workforce rose 3% to more than 1.55 million full- and part-time employees.
The Seattle-based company also projected strong growth in the quarter ending in December. Operating income will be about $18 billion, topping analysts’ average estimate of $17.5 billion. Fourth-quarter sales will be as much as $188.5 billion. Analysts, on average, projected $186.4 billion, according to data compiled by Bloomberg.
