Amazon Shares Pump And Dump After Solid Beat, Muted Guidance And Earnings Call Caution
With The Magnificent 7 stocks getting clubbed like a baby seal in recent days, hope is high that Amazon can save the world (as Nasdaq broke below a key technical level today). So here's the good news: a top- and bottom-line beat:
Net sales increased 13% to $143.1 billion in the third quarter (better than the $141.56 billion consensus), compared with $127.1 billion in third quarter 2022.
*AMAZON 3Q EPS 94C, EST. 58C
Amazon’s advertising division also beat expectations with revenue of $12.1 billion, up from $9.6 billion a year ago, meaning its business is holding up better than Meta’s as advertisers pull back.
“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 Andy Jassy, Amazon CEO.
“The benefits of moving from a single national fulfillment network in the U.S. to eight distinct regions are exceeding our optimistic expectations, and perhaps most importantly, putting us on pace to deliver the fastest delivery speeds for Prime customers in our 29-year history."
However, breaking down the business lines, AWS disappointed (very modestly) as did Physical Stores...
- Amazon 3Q Physical Stores Net Sales $4.96B, Est. $4.99B
- Amazon 3Q AWS Net Sales $23.06B, Est. $23.13B
- Amazon 3Q Subscription Services Net Sales $10.17B, Est. $10.13B
So on one hand, AWS operating income improved to $7.0 billion - not only $1.3 billion more than expected but also the highest in history - and the AWS margin surged to 30.25%, the highest since two years...
... compared with operating income of $5.4 billion in third quarter 2022, but sales growth at AWS (in constant currency) stuck at record low 12%...
It wasn't just AWS: margins improved at both the company's North America and International operations, with both rising to the highest in more than two years, and resulting in the highest blended margin for the company since mid-2021.
Of course, Jassy highlighted AI:
"The AWS team continues to innovate and deliver at a rapid clip, particularly in generative AI, where the combination of our custom AI chips, Amazon Bedrock being the easiest and most flexible way to build and deploy generative AI applications, and our coding companion (CodeWhisperer) allowing enterprises to have the equivalent of an experienced engineer who understands all of their proprietary code is driving momentum with customers, including adidas, Booking.com, GoDaddy, LexisNexis, Merck, Royal Philips, and United Airlines, all of whom are starting to run generative AI workloads on AWS. Between AWS re:Invent and our 29th holiday shopping season, this is a particularly action-packed time of year at Amazon and we’re excited for what’s to come.”
More AI is hardly good news for white collar workers. On the other hand, Amazon's 1.5 million mostly warehouse workers, up 2.7% from 1.461 million last quarter, have little to be concerned about, at least until "smart" robots take their jobs too.
Finally, Amazon appears to have lowered guidance, or at the very least, adjusted it to a much lower band:
- Amazon Sees 4Q Net Sales $160.0B to $167.0B, Est. $166.57B
The midline of the guidance, at 163.5BN, suggests that the company is projecting just shy of 10% revenue growth, not too far from what has historically been the lowest growth in history.
The slightly weaker-than-expected guidance is the latest sign of weakening consumer spending heading into the holiday season.
Initially, investors shrugged off the subpar sales guidance and focused on AWS profit margin and sent shares up large after hours (after an ugly day session), but after the media call started and the CFO warned that customers are still being cautious on price, AMZN stock reversed gains of as much as 5% and was last trading modestly in the red.
