Amazon late Thursday reported third-quarter earnings and revenue growth that topped Wall Street's estimates. Amazon stock jumped Friday, particularly after the tech giant called out deal momentum for its cloud services business.
For the quarter ending in September, Amazon reported adjusted earnings of 94 cents a share. Revenue increased 13% year over year to $143.1 billion. Analysts expected Amazon to post adjusted earnings of 59 cents per share on revenue of $141.5 billion, according to estimates tallied by FactSet. For the same quarter last year, Amazon reported adjusted earnings of 28 cents per share and sales of $127.1 billion.
For its closely-watched Amazon Web Services Cloud business, Amazon posted a 12% year-over-year sales increase to $23.1 billion. That missed analysts' expectations for sales of $23.2 billion.
Chief Executive Andy Jassy acknowledged that companies were still undertaking "cost optimizations" to lower their cloud software spending. But he added that deal-making for AWS had picked up late in the quarter and this month. Further, he said he was "surprised" by the uptake for AWS generative AI products.
"Companies have moved more slowly in an uncertain economy in 2023 to complete deals," Jassy said. "But we're seeing the pace and volume of closed deals pick up. We're encouraged by the strong last couple of months in new deals signed."
That soothed investors concerns. On the stock market today, Amazon stock closed at 127.75, a 6.8% increase.
Amazon Highlights Momentum
Amazon said it expects sales between $160 billion and $167 billion for the current fourth quarter. Analysts were looking for $167.1 billion, according to FactSet.
Amazon stock climbed after-hours despite the revenue miss for its important cloud business. Notably, a miss for Google's cloud business sank shares for Alphabet earlier this week.
AWS has long been a key profit driver for the company. To that point, Q3 operating income for AWS jumped 29% year over year to $6.98 billion. That easily surpassed Wall Street estimates of $5.6 billion.
Still, the cloud revenue confirmed expectations from some Wall Street analysts that sales growth for AWS would stay relatively flat from the prior quarter. AWS revenue also grew 12% year over year in the second quarter, compared to 27.5% year over year growth in the third quarter of 2022.
Commentary from both Google and Microsoft indicated corporate customers are still cutting back on software spending. AWS is the world's largest cloud-services provider, followed by Microsoftand Google.
Amazon's AI Push
But Jassy highlighted that customers are using its generative AI products—an important point given that top cloud rival Microsoft is spending big on the buzzy technology.
"In our best estimation, the amount of growth we're seeing and the absolute amount of generative AI business we're seeing compares very favorably with anything else I've seen externally," Jassy said.
Amazon struck a deal in September to invest up to $4 billion in Anthropic, a rival to ChatGPT-creator OpenAI. Further, Amazon in April launched Amazon Bedrock, a service that allows users of Amazon's AWS to build generative AI applications.
"We view AWS stability in 3Q as a better-than-feared outcome and believe investor expectations had migrated below consensus ahead of results," wrote Wedbush analyst Scott Devitt. "Management commentary regarding AWS was upbeat in our view and suggested a strong customer pipeline ahead in addition to $10B+ of potential AWS revenue stemming from AI over the next several years."
Amazon Stock: Ad Business Is Booming
Meanwhile, Amazon's e-commerce sales were up 7% to $57.3 billion. Wall Street analysts projected sales of $56.97 billion.
The e-commerce giant collected $34.3 billion from third-party sellers, compared to analyst projections of $33.4 billion.
Advertising again was Amazon's fastest-growing division. The company raked in $12.1 billion in ad revenue, up 26% from the same period last year. Analysts were looking for $11.6 billion.
Prior to its earnings report, Amazon stock was up 42% this year. Shares lost 49% last year as the company posted a loss for the year.
Further, Amazon stock has an IBD Relative Strength Rating of 88 out of a best-possible 99.
Amazon holds an IBD Composite Rating of 83 out of 99. The best growth stocks have a Composite Rating of 90 or better, according to IBD Stock Checkup.
