Amazon earnings: Beats estimates on sales, but misses target for cloud

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Amazon (AMZN) reported its third quarter earnings on Thursday, beating expectations on net sales and EPS, but missing on its cloud revenue.

Amazon shares climbed by as much as 5% in after-hours trading, but those gains dissipated as investors digested the report.

Amazon’s cloud business, Amazon Web Services or AWS, fell slightly short of analysts’ net sales expectations, coming in at $23.06 billion, against the $23.13 billion Wall Street expected.

However, there were silver linings, as AWS sales were up 12% year-over-year and the division’s operating income is also on the upswing, coming in at $7 billion, a roughly 29% increase from last year.

It’s been a week of mixed cloud results. On Tuesday, Microsoft (MSFT) reported better-than-anticipated growth in its Azure cloud business, while Alphabet’s (GOOG, GOOGL) cloud growth numbers disappointed.

AWS growth has been under a microscope this year, and it’s a subject that’s been “getting the most airtime with investors,” JPMorgan’s Doug Anmuth wrote before earnings. In a call with media on Thursday, Amazon CFO Brian Olsavsky said that he doesn’t believe AWS growth has stalled completely, characterizing the cloud business as, instead, in a “delicate” transition.

“We have cost optimization work that’s starting to slow down… and we’re starting to see more and more new workloads come up,” Olsavsky told reporters.

The earnings rundown

Here are the key numbers that Amazon reported, as compared to analysts’ estimates compiled by Bloomberg:

Net sales: $143.08 billion actual, versus $141.56 billion expected

AWS net sales: $23.06 billion actual, versus $23.13 billion expected

Earnings per share: $0.94 actual, versus $0.58 expected

Operating margin: 7.8% actual, versus 5.46% expected

Q4 net sales: $160-167 billion actual, versus $166.57 billion expected

Currently, analyst recommendations for Amazon come out to 63 Buys, two Holds, and zero Sells.

“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,” said Amazon CEO Andy Jassy in a statement.

Looking ahead, keep an eye on those operating margins. Amazon’s operating margins have been increasing — going up 32% between Q1 and Q2, and clocking a notable beat in Q3 — which suggests that Amazon’s post-pandemic efficiency efforts have been working.

“We analyzed ten years of historical data and identified all periods when Amazon’s operating margin either increased or decreased on a basis for two or more consecutive quarters,” wrote Wedbush’s Scott Devitt before earnings. “We then compared share price returns during those periods, and found that on average, Amazon shares have appreciated 84% when operating margins are rising versus just 1% when operating margins are declining.”

This is breaking news, check back for updates.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn..

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