Amazon (AMZN) reported its third quarter earnings on Thursday, beating expectations on net sales and earnings per share, but missing slightly on its cloud revenue. However, the company’s CEO Andy Jassy highlighted the strong growth of its artificial intelligence (AI) products and services, which he said represent an opportunity worth “tens of billions” for Amazon’s cloud business, Amazon Web Services (AWS). Amazon stock jumped more than 5% in after-hours trading following the call, and continued to rise on Friday.
AWS Revenue Misses Estimates, But Operating Income Surpasses Expectations
AWS is the world’s largest cloud-services provider, followed by Microsoft (MSFT) and Google (GOOG, GOOGL). AWS has long been a key profit driver for the company, accounting for more than half of its operating income. In the third quarter, AWS posted a 12% year-over-year sales increase to $23.1 billion, slightly below analysts’ expectations of $23.2 billion. However, AWS operating income jumped 29% year over year to $6.98 billion, easily surpassing Wall Street estimates of $5.6 billion.
AWS revenue growth has slowed down from the previous quarters, as the pandemic-induced surge in cloud demand has moderated. 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 2020. AWS faces stiff competition from Microsoft’s Azure and Google’s Cloud Platform, which both reported higher revenue growth rates than AWS in their latest quarters. Moreover, some corporate customers are still cutting back on software spending amid the uncertain economy.
AI Is The Future Of The Cloud, Says Jassy
Despite the revenue miss, Jassy expressed optimism about the future of AWS, especially in the field of AI. He said that AWS has seen “surprising” uptake for its generative AI products, which use large language models to create text, images, audio, and video. AWS launched its Bedrock AI service earlier this year, which streamlines the development of such models. Jassy said that Bedrock AI is growing very quickly, and that customers are using it for various applications, such as content creation, customer service, and data analysis.
Jassy also said that AWS has signed new deals with customers in the last couple of months, indicating that deal-making activity has picked up after a slow start to the year. He said that companies have moved more slowly in an uncertain economy to complete deals, but that AWS is seeing the pace and volume of closed deals increase. He added that AWS has a strong pipeline of new products and services that will be announced at its upcoming re:Invent conference in November.
Jassy’s comments on AI and deal momentum soothed investors’ concerns about AWS growth prospects. Amazon stock rose more than 5% in after-hours trading following the call, and gained another 5% on Friday.
Amazon Beats Earnings And Revenue Estimates For The Whole Company
For the whole company, Amazon reported adjusted earnings of 94 cents a share, beating analysts’ estimates of 59 cents per share. Revenue increased 13% year over year to $143.1 billion, topping analysts’ expectations of $141.5 billion. For the same quarter last year, Amazon reported adjusted earnings of 28 cents per share and sales of $127.1 billion.
Amazon’s online store sales grew 10% year over year to $63.4 billion, while its physical store sales declined 4% year over year to $4.2 billion. Its subscription services revenue, which includes Prime memberships, increased 15% year over year to $8 billion. Its other revenue segment, which mainly consists of advertising sales, soared 44% year over year to $9 billion.
Amazon said it expects sales between $160 billion and $167 billion for the current fourth quarter, which includes the holiday season. Analysts were looking for $167.1 billion, according to FactSet.
