The e-commerce giant's Q4 revenue guidance also beat Wall Street's expectation.
Shares of Amazon (AMZN 7.49%) jumped 5.4% in Thursday's volatile after-hours trading session, following the e-commerce and cloud computing leader's release of its third-quarter 2023 report.
The gain is attributable to the quarter's revenue and earnings both sprinting by Wall Street's estimates, with the bottom-line beat a particularly big one. Investors were also likely pleased that revenue guidance for the fourth quarter -- the particularly important holiday quarter -- exceeded the analyst expectation.
1. Revenue grew 13%
Amazon's net quarterly sales grew 13% year over year to $143.1 billion, easily surpassing the $133.4 billion Wall Street had expected. That result also edged by the company's guidance range of $138 billion to $143 billion. Excluding the favorable effect from foreign-currency exchange, revenue increased 11% from the year-ago period.
Year-over-year revenue growth at AWS continued to slow on a sequential-quarter basis. In the prior three quarters, the cloud computing unit's year-over-year revenue grew 12% (Q2 2023), 16% (Q1 2023), and 20% (Q4 2022). This slowdown is industrywide, as many businesses are being cautious with their spending due to the uncertain macro environment. On the earnings call, management expressed optimism that the surging adoption of artificial intelligence (AI) will be a big tailwind for its AWS business.
That said, AWS's profitability increased significantly (as discussed in the next section) more than its revenue, and profitability growth, arguably, is more important than revenue growth.
Moreover, Amazon's e-commerce business's revenue growth outperformed Wall Street's expectations, which more than compensated for AWS's revenue falling just a tad short of the Street's estimate ($23.06 billion vs $23.13 billion). This dynamic underscores the benefit of diversification.
2. Operating income soared 348%
The quarter's operating income more than quadrupled from the year-ago period to $11.2 billion. This result walloped Amazon's guidance range for operating income between $5.5 billion and $8.5 billion.
AWS's operating income growth was robust on both a year-over-year and a sequential basis. As noted in the chart, it jumped 30% year over year, and it also increased 30% from the prior quarter (Q2 2023).
In the prior quarter, AWS's operating income edged down 5% year over year to $5.4 billion.
3. Earnings per share surged 236%
In Q3, net income was $9.9 billion, or $0.94 per share, up 236% year over year. This result crushed the earnings per share (EPS) of $0.28 that Wall Street had expected.
The quarter's net income includes a pre-tax valuation gain of $1.2 billion included in nonoperating expense from Amazon's common stock investment in electric vehicle maker Rivian Automotive, which went public in November 2021. The year-ago quarter's net income had included a pre-tax valuation gain of $1.1 billion from the Rivian stock.
4. Operating cash flow rose 81% for the trailing year
Operating cash flow jumped 81% to $71.7 billion for the trailing-12-month period. Free cash flow (FCF) was $21.4 billion for this period, compared with negative $19.7 billion in the year-ago period.
The company ended the quarter with cash and cash equivalents of $50.1 billion, and long-term debt of $61.1 billion.
Investors should mainly focus on Amazon's operating cash flow, rather than its FCF. FCF can jump around a lot quarter to quarter based on how much money the company is investing in growth initiatives.
5. Revenue is expected to grow 7% to 12% in the fourth quarter
For Q4, management guided for net sales in the range of $160 billion to $167 billion, which would amount to growth of 7% to 12% year over year. This guidance includes an expected favorable impact of 40 basis points (0.4 percentage points) from foreign exchange rates.
Going into the Q3 report, Wall Street had been modeling for Q4 revenue of $157.2 billion, so Amazon's top-line guidance was higher than what analysts had been expecting.
Amazon, which doesn't provide earnings guidance, also said that it expects Q4 operating income will be between $7.0 billion and $11.0 billion, compared with $2.7 billion in the prior-year period.
A good overall quarter
Amazon turned in a strong quarter, especially considering the uncertain macro environment.
With its leading positions in two massive growth markets -- e-commerce and cloud computing -- Amazon still has a long runway for growth.
Shares of Amazon (AMZN 7.49%) jumped 5.4% in Thursday's volatile after-hours trading session, following the e-commerce and cloud computing leader's release of its third-quarter 2023 report.
The gain is attributable to the quarter's revenue and earnings both sprinting by Wall Street's estimates, with the bottom-line beat a particularly big one. Investors were also likely pleased that revenue guidance for the fourth quarter -- the particularly important holiday quarter -- exceeded the analyst expectation.
1. Revenue grew 13%
Amazon's net quarterly sales grew 13% year over year to $143.1 billion, easily surpassing the $133.4 billion Wall Street had expected. That result also edged by the company's guidance range of $138 billion to $143 billion. Excluding the favorable effect from foreign-currency exchange, revenue increased 11% from the year-ago period.
Year-over-year revenue growth at AWS continued to slow on a sequential-quarter basis. In the prior three quarters, the cloud computing unit's year-over-year revenue grew 12% (Q2 2023), 16% (Q1 2023), and 20% (Q4 2022). This slowdown is industrywide, as many businesses are being cautious with their spending due to the uncertain macro environment. On the earnings call, management expressed optimism that the surging adoption of artificial intelligence (AI) will be a big tailwind for its AWS business.
That said, AWS's profitability increased significantly (as discussed in the next section) more than its revenue, and profitability growth, arguably, is more important than revenue growth.
Moreover, Amazon's e-commerce business's revenue growth outperformed Wall Street's expectations, which more than compensated for AWS's revenue falling just a tad short of the Street's estimate ($23.06 billion vs $23.13 billion). This dynamic underscores the benefit of diversification.
2. Operating income soared 348%
The quarter's operating income more than quadrupled from the year-ago period to $11.2 billion. This result walloped Amazon's guidance range for operating income between $5.5 billion and $8.5 billion.
AWS's operating income growth was robust on both a year-over-year and a sequential basis. As noted in the chart, it jumped 30% year over year, and it also increased 30% from the prior quarter (Q2 2023).
In the prior quarter, AWS's operating income edged down 5% year over year to $5.4 billion.
3. Earnings per share surged 236%
In Q3, net income was $9.9 billion, or $0.94 per share, up 236% year over year. This result crushed the earnings per share (EPS) of $0.28 that Wall Street had expected.
The quarter's net income includes a pre-tax valuation gain of $1.2 billion included in nonoperating expense from Amazon's common stock investment in electric vehicle maker Rivian Automotive, which went public in November 2021. The year-ago quarter's net income had included a pre-tax valuation gain of $1.1 billion from the Rivian stock.
4. Operating cash flow rose 81% for the trailing year
Operating cash flow jumped 81% to $71.7 billion for the trailing-12-month period. Free cash flow (FCF) was $21.4 billion for this period, compared with negative $19.7 billion in the year-ago period.
The company ended the quarter with cash and cash equivalents of $50.1 billion, and long-term debt of $61.1 billion.
Investors should mainly focus on Amazon's operating cash flow, rather than its FCF. FCF can jump around a lot quarter to quarter based on how much money the company is investing in growth initiatives.
5. Revenue is expected to grow 7% to 12% in the fourth quarter
For Q4, management guided for net sales in the range of $160 billion to $167 billion, which would amount to growth of 7% to 12% year over year. This guidance includes an expected favorable impact of 40 basis points (0.4 percentage points) from foreign exchange rates.
Going into the Q3 report, Wall Street had been modeling for Q4 revenue of $157.2 billion, so Amazon's top-line guidance was higher than what analysts had been expecting.
Amazon, which doesn't provide earnings guidance, also said that it expects Q4 operating income will be between $7.0 billion and $11.0 billion, compared with $2.7 billion in the prior-year period.
A good overall quarter
Amazon turned in a strong quarter, especially considering the uncertain macro environment.
With its leading positions in two massive growth markets -- e-commerce and cloud computing -- Amazon still has a long runway for growth.
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