Amazon reports robust sales while cloud growth remains steady

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Strong sales at Amazon’s online store and an expanding advertising business helped propel the ecommerce group’s earnings in the third quarter, while growth in its cloud computing division continued to stabilise.

Consumers were “spending money, but cautious and deal driven”, chief financial officer Brian Olsavsky said. Sales at Amazon’s online stores were up 6 per cent year on year to $57.3bn and North American margins were improving.

Businesses were still looking to cut IT costs, which remained a “headwind” for the cloud computing division, a core driver of the group’s profits, Olsavsky said. But the pace of cost-cutting had slowed, while “new workloads” were growing, including from companies looking to deploy generative artificial intelligence, he added.

Investors had been nervously watching Amazon’s cloud segment following a sharp slowdown earlier in the year. Sales in the unit for the third quarter rose 12 per cent to $23.1bn, in line with expectations and at the same rate as during the second quarter. Margins increased 4 percentage points to 30.3 per cent.

Inflation, higher interest rates and a slowdown in consumer and enterprise spending squeezed Amazon’s margins and earnings last year, and analysts have warned that headwinds persist in the ecommerce and cloud computing sectors.

Stefan Slowinski, an analyst at BNP Paribas, said: “When you have a complex business like Amazon with lots of different components . . . in a tricky market there are lots of things to worry about.”

However, cost-cutting boosted profits in the third quarter. The “regionalisation” of Amazon’s vast logistics network meant goods could be stored closer to customers, delivery costs were lower and times were faster, Olsavsky said. Those improvements had been “a key driver of growth and resulted in increased purchase frequency”.

Revenues from the company’s high-margin advertising business, which includes the fees paid by merchants on its online marketplace to promote their products, jumped 25 per cent year on year to $12.1bn.

Amazon chief executive Andy Jassy said the company had “barely scraped the surface” when it came to integrating advertising into “video, audio and grocery”.

Amazon was among the Big Tech companies to make significant dismissals this year, shedding about 27,000 jobs in an effort to rein in spending.

The group is also competing with rivals Google and Microsoft to capitalise on the excitement around generative AI, including via its cloud business but also with consumer products such as the next iteration of the Alexa voice assistant. Jassy said teams across the company were “working on generative AI applications to transform customer experiences”.

Generative AI was also a “very substantial, gigantic” opportunity for Amazon’s cloud business that would drive “tens of billions in revenues”, he said.

“Almost by any measure it’s a pretty significant business for us already,” Jassy added, and developers of the technology were “making big bets” on the Trainium and Inferentia AI chips Amazon had developed.

Amazon’s cloud growth has fallen to half that of Microsoft’s and Google’s cloud businesses, though the company was starting from a much larger base. Demand for new AI services led to a reacceleration of cloud growth at Microsoft in the latest quarter. However, Google’s customers looking to squeeze their cloud spending led to a fall-off in growth, which contributed to a 12 per cent slide in the shares of parent Alphabet in the past two days.

Overall, Amazon sales rose 13 per cent year-on-year in the third quarter to $143.1bn, while pre-tax earnings jumped more than 300 per cent to $11.2bn, compared with forecasts for $7.68bn, according to S&P Capital IQ.

Amazon shares were up more than 4 per cent after-hours in New York.

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