Amazon CEO Andy Jassy delivered positive news to investors during this earnings season, with strong sales and profit growth. He also indicated that the cloud division, Amazon Web Services (AWS), is regaining momentum. Although third-quarter revenue for AWS fell slightly short of projections, Jassy stated that the business is stabilizing. The company has signed new deals with customers, effective this month, and the demand for generative artificial intelligence is expected to boost the division in the future. Following Jassy’s comments, Amazon’s shares rose by about 5% in pre-market trading.
Under Jassy’s leadership, Amazon has focused on cost cuts and increasing profitability. The company has become more reliant on services such as advertising, logistics services, and renting computing power to corporations, which tend to generate higher profits than its original online retail business. AWS saw a 12% increase in sales, reaching $23.1 billion, marking the first quarter-to-quarter rise in revenue growth in almost two years. The operating income of $6.98 billion exceeded analysts’ expectations by about $1.3 billion. AWS reported its highest operating margin since Q1 2022.
Jassy acknowledged that some companies are still reducing their spending on rented computing power and software, which has affected AWS’s growth. However, many clients are now choosing to run new projects on Amazon’s servers. Jassy also outlined Amazon’s plans to become a major player in generative AI, which has the potential to generate “tens of billions” in revenue for AWS over the next few years. During the quarter, Amazon announced a partnership with AI startup Anthropic, investing up to $4 billion in the company.
The quarterly results demonstrated that Amazon’s cost-cutting efforts have paid off. The company reduced spending on sales and marketing compared to the previous year, while spending on technology and infrastructure increased by just 8.8%. Third-quarter revenue reached $143.1 billion, a 13% increase, surpassing analysts’ estimates. The central online stores performed well, generating $57.3 billion in revenue, a 7% increase from the previous year. Advertising sales also saw a significant jump of 26% to $12 billion.
Looking ahead, Amazon projected sales of $160 billion to $167 billion for the quarter ending in December. While company executives expressed caution about holiday-quarter spending, analysts remain optimistic. Amazon’s successful Prime Day event and its strong momentum heading into the holiday season are expected to drive retail e-commerce sales.