Amazon Stock Climbs After Earnings. But AWS Is Doing Just OK.

Profits were 94 cents a share, well above the consensus of 58 cents. Net income of $9.9 billion included a $1.1 billion pretax noncash gain on the company’s stake in Rivian Automotive (RIVN).

Amazon Web Services revenue was $23.1 billion, up 12.3% from a year ago, which was about in line with Wall Street estimates, and consistent with the 12.2% increase one quarter earlier.

Amazon CFO Brian Olsavsky said in a call with reporters that the company increased AWS revenue by about $900 million versus three months earlier. He also noted that customers continue to focus on spending optimization, but that the process is slowing down. He declined to say whether the growth rate for AWS has now bottomed.

Amazon shares were trading around breakeven heading into the company’s conference call late Thursday, but they moved higher after CEO Andy Jassy said on the call that AWS booked some large contracts late in the third quarter. They won’t start showing up in results until the fourth quarter, he said.

Amazon stock was up 4.8% in premarket trading Friday. Shares were down 1.5% in Thursday’s regular session.

Heading into the earnings report, AWS growth had decelerated for six straight quarters, falling to 12.2% in the June quarter, from 39.5% in the last quarter of 2021. The slowing growth reflects a recent focus from cloud customers on “optimizing” their cloud spending, figuring out how to get more value from their growing cloud outlays.

This week’s results from cloud rivals
Alphabet
(GOOGL) and
Microsoft
(MSFT) both noted that the optimization trend is continuing. The Google Cloud business posted disappointing results in the quarter, while Microsoft topped expectations. Amazon largely split the difference. Amazon bulls have expected AWS growth to begin accelerating soon as corporate spending budgets loosen and a focus on AI workloads expands, but there was no big jump in the latest quarter.

Operating income was $11.2 billion, well above the company’s forecast range of $5.5 billion to $8.5 billion. That incudes an operating profit in North America of $4.3 billion, reversing a loss of $400 million in the year ago quarter. AWS had an operating profit of $7 billion, up from $5.4 billion in the year-earlier period.

“We had a strong third quarter as our cost to serve and speed of delivery in our stores business took another step forward, our AWS growth continued to stabilize, our advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” Amazon CEO Andy Jassy in a press release.

Online store sales were $57.3 billion, up 7%, improving from 4% growth in the June quarter, while third-party services revenue was $343 billion, up 20%, versus 18% growth in the June quarter.

Amazon said subscription services revenue—mostly Amazon Prime—was $10.2 billion, up 14%. Sales at physical stores were $5 billion, up 6%.

Advertising revenue jumped 26% in the quarter, from 22% in the June quarter, to $12.1 billion. Olsavsky said the company isn’t seeing an impact from geopolitics. That’s a contrast from
Meta,
which noted on its earnings call Wednesday that the company was seeing some slowdown in spending tied to the outbreak of violence in the Middle East.

Olsavsky noted that ad growth has outpaced overall company growth, driven by improved targeting and higher click-through rates.

For the fourth quarter, Amazon sees sales of between $160 billion and $167 billion, with operating income ranging from $7 billion to $11 billion. Wall Street estimates for the quarter have called for revenue of $167.2 billion, up 12%, with operating income of $8.7 billion.

Write to Eric J. Savitz at [email protected]