The report gives investors mixed signals, and the share reaction is likely to hinge on whether the margin beat outweighs the soft profit outlook. The cloud result supports the case that AI-related demand is still building, which matters for other hyperscalers and chipmakers reporting this season. A guidance midpoint below consensus heading into the holiday quarter could cap gains in Amazon shares and weigh on consumer discretionary sentiment more broadly. With Amazon a large weight in the Nasdaq 100 and S&P 500, its move will feed into US index futures in the Asian session.
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Amazon squeezed more profit out of a slightly smaller-than-expected quarter, but a bottom-line miss and a cautious holiday-quarter outlook leave the cloud beat doing much of the heavy lifting.
Summary:
- Q3 EPS was $1.89, below the $1.97 estimate
- Net sales of about $202 billion were marginally below forecasts; operating income of around $28 billion beat by roughly $2 billion
- Operating margin reached 13.9% against expectations of 12.9%
- AWS sales of about $46 billion edged past estimates, with growth of 39% ex-FX against 38% expected
- North America sales of about $113 billion and physical stores revenue of around $5.7 billion both came in slightly light
- Q4 guidance: sales of $240 billion to $247 billion and operating income of $28.5 billion to $33.5 billion, with both midpoints below consensus
Amazon delivered a stronger-than-expected operating profit for the third quarter, helped by a wider margin and a slight beat at its cloud computing arm, but earnings per share fell short of forecasts and its fourth-quarter outlook landed mostly below what analysts had pencilled in.
Operating income came in at around $28 billion, roughly $2 billion above consensus, with the operating margin reaching 13.9% against expectations of 12.9%. That margin performance was the standout of the report. Earnings per share, however, came in at $1.89, short of the $1.97 expected. This suggests items below the operating line weighed on the bottom line. The initial figures did not break out what drove that gap.
Total net sales of about $202 billion were marginally below the estimate, a miss of well under one percent. Amazon Web Services, the company’s most closely watched division, generated around $46 billion in sales, a touch ahead of forecasts. Excluding currency effects, AWS revenue grew 39% from a year earlier, one percentage point faster than analysts expected. The market will read that result as a measure of demand for cloud and artificial intelligence infrastructure.
The retail side was softer. North America net sales of about $113 billion came in a shade below expectations, while physical stores revenue of around $5.7 billion also missed slightly.
Guidance is likely to draw as much attention as the quarter itself. Amazon expects fourth-quarter net sales of $240 billion to $247 billion. That range brackets the roughly $245 billion consensus, but its midpoint of about $244 billion sits just under it. The operating income forecast of $28.5 billion to $33.5 billion has a midpoint of around $31 billion, about $2 billion below the near $33 billion analysts expected, although the top of the range sits slightly above it.
The fourth quarter covers the holiday shopping season, Amazon’s most important period for retail sales. Investors will look to management commentary for detail on what drove the earnings per share shortfall, the outlook for AWS growth and spending, and why the profit guidance range was set so wide.
This article was written by Eamonn Sheridan at investinglive.com.