Amazon’s belt-tightening produces strong results in cloud, e-commerce

Amazon.com Inc. reported strong results that showed a company humming on all cylinders, a testament to its efforts to cut and reallocate costs and put the cloud computing and e-commerce giant on a firmer footing.

Amazon Web Services’ cloud division, which saw record low sales growth last year, continued to regain momentum during the third quarter. The online retail operation, which has been reeling from the pandemic, has grown double-digit unit sales. So did revenue from Amazon’s fast-growing advertising business.

Total third-quarter revenue rose 11 percent to $158.9 billion, the company said in a statement Thursday, beating estimates. Operating profit was $17.4 billion, smashing the average estimate of $14.7 billion.

“Amazon beat expectations in Q3 based on the three pillars of its business: e-commerce, advertising and cloud services,” said Sky Canaves, analyst at Emarketer.

Amazon shares rose about 5 percent in extended trading after closing at $186.40 in New York on Thursday. The stock is up 23% this year.

The results show the fruits of Chief Executive Andy Jassy’s years-long efforts to cut costs and streamline Amazon’s logistics operations. This gave it room to spend heavily on new data centers needed to drive demand for AI services. Speaking to analysts on a conference call after the results, CFO Brian Olsavsky said Amazon expects to allocate $75 billion in capital spending in 2024, most of which will go toward technology infrastructure. Jassy said he expects the company to spend even more next year.

The CEO called generative AI “a really unusually large, maybe once-in-a-lifetime type of opportunity. And I think our customers, our business and our shareholders will feel good about that long term — that we’re aggressively pursuing it.”

Cloud unit revenue rose 19% to $27.5 billion in the third quarter, in line with estimates. Operating income from the unit was $10.4 billion, beating the average analyst estimate of $9.12 billion.

“People tend to get a little uptight when Amazon talks about spending increases, but they have such a track record of spending large amounts of money and getting really good returns from it,” said Brian Yarbrough, an analyst at Edward D. . Jones & Co.

Amazon’s main cloud rivals, Alphabet Inc’s Google. and Microsoft Corp., sharply diverged when they reported earnings earlier this week. Google posted quarterly cloud sales that rose more than analysts had expected, reaching $11.4 billion, a 35 percent increase from the year-ago period. Meanwhile, Microsoft is forecasting slower quarterly growth in cloud revenue, reflecting the company’s struggle to bring data centers online fast enough to keep up with demand for AI services.

Amazon reported revenue from its online store unit rose 7 percent to $61.4 billion in the period ended Sept. 30, while sales at its fast-growing advertising unit rose 19 percent year over year previously, up to $14.3 billion.

Total operating expenses rose 7.2 percent to $141.5 billion, marking the seventh straight quarter in which Amazon’s revenue grew at a higher rate than costs. The company’s workforce grew 3 percent to more than 1.55 million full-time 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, beating the average analyst estimate of $17.5 billion. Fourth quarter sales will reach $188.5 billion. Analysts, on average, had estimated $186.4 billion, according to data compiled by Bloomberg.