Amazon announced late yesterday that its third quarter net sales increased 13 percent to $143.1 billion, compared with $127.1 billion during the same period a year ago. Q3 net income increased to $9.9 billion in the third quarter, compared with $2.9 billion a year ago.
The increase in profit coincides with the cost-cutting efforts implemented by CEO Andy Jassy, including the elimination of some 27,000 jobs throughout the company.
Advertising sales grew 26 percent to $12 billion, compared to $9.5 billion during the same period a year ago.
Amazon Web Services (AWS) sales were up 12% year over year to $23.1 billion – significant growth, though it pales compared to previous growth rates that sometimes were two and even three times as high.
The Seattle Times writes that Jassy credited the overall growth “to stabilization at Amazon Web Services, the company’s cloud computing division, driven largely by interest in generative AI as well as faster delivery speeds. Chief Financial Officer Brian Olsavsky added decreased costs to that list.
“Helped by easing inflationary pressure on ‘key transportation areas,’ Olsavsky said Amazon has been ‘careful’ with expenses, questioning its investments and redirecting resources to areas where they have the most impact. Part of that, Olsavsky continued, included managing its head count and deciding not to fill certain positions.”
The Washington Post also quotes Olsavsky as saying, “We’re ready to make this a great holiday season for customers,” and that “Amazon’s operations network and inventory are in the ‘best position’ its ever been heading into the holiday season.”
The Wall Street Journal reports that “Amazon might not yet be the clear winner in the race among tech giants over artificial intelligence. But it isn’t losing ground yet either … Much remains to be seen about how Amazon will fare in AI. The company is the undisputed leader in cloud computing; AWS now generates nearly $89 billion in annual revenue, which would rank the division 40th on the S&P 500 as a stand-alone company. But Amazon also has a much less lucrative core business than Microsoft and Google to help underwrite the expensive technology. Those two rivals currently generate annual free cash flow in the $63 billion to $78 billion range, compared with about $21 billion for Amazon.
“Hence, Amazon is getting creative. The company has a growing line of in-house chips to power its cloud services, including processors designed for AI training and workloads that compete with Nvidia’s. A deal announced last month with Anthropic, an AI startup competing with ChatGPT creator OpenAI, should raise the profile of Amazon’s AI chips as Anthropic uses them to train and deploy its AI model.”
KC’s View:
Amazon spent a lot of time yesterday emphasizing how it continues to innovate for shoppers and offer opportunities to third-part sellers, which are messages that I think are pretty clearly aimed at the Federal Trade commission (FTC), which has taken antitrust actions against the company. I also think that the artificial intelligence comments have a subtext – that Amazon isn’t the biggest and best in this segment at the moment, and should not be targeted for breakup.
I must admit that I’m alarmed by the ad revenue increase – purely because Amazon’s growing reliance on ad revenue seems likely to result in a further diminishing of the site’s consumer appeal. There are way too many ads, there are going to be more, and they hurt the shopper experience. I understand why the revenue is necessary, but I worry that over the long run, it will damage Amazon’s value proposition.
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