Amazon’s Operating Profit Surprises to the Upside

Image: Amazon’s shares have done quite well since the beginning of 2023.

By Brian Nelson, CFA

Amazon (AMZN) reported better than expected third quarter results October 31 with revenue and GAAP earnings per share coming in higher than the consensus forecast. Net sales increased 11% on both a reported and currency-neutral basis, with North America segment sales up 9%, International segment sales up 12%, and AWS segment sales up 19%, all on a year-over-year basis.

Operating income advanced to $17.4 billion in the third quarter, beating the consensus estimate of $14.7 billion and up from $11.2 billion in the same period last year. North America segment operating income came in at $5.7 billion, up from $4.3 billion in last year’s quarter, International segment operating income increased to $1.3 billion from an operating loss of $0.1 billion in the year-ago quarter, while AWS segment operating income was $10.4 billion, up from $7 billion in the third quarter of 2023.

Net income increased to $15.3 billion in the third quarter, with GAAP earnings per share of $1.43 beating the consensus estimate by $0.29. For the trailing twelve months, operating cash flow increased 57%, to $112.7 billion, while free cash flow over the same time period advanced to $47.7 billion compared with $21.4 billion for the trailing twelve months ended September 30, 2023.

Management had the following to say about the quarter:

As we get into the holiday season, we’re excited about what we have in store for customers. We kicked off the holiday season with our biggest-ever Prime Big Deal Days and the launch of an all-new Kindle lineup that is significantly outperforming our expectations; and there’s so much more coming, from tens of millions of deals, to our NFL Black Friday game and Election Day coverage with Brian Williams on Prime Video, to over 100 new cloud infrastructure and AI capabilities that we’ll share at AWS re:Invent the week after Thanksgiving.

Looking to the fourth quarter of 2024, Amazon’s net sales are expected to be between $181.5 billion and $188.5 billion, growing 7%-11% compared with the fourth quarter of 2023 and the midpoint slightly below consensus of $186.4 billion. The top line guidance assumes an unfavorable impact of roughly 10 basis points from currency fluctuations. Operating income in the quarter is targeted in the range of $16-$20 billion, compared with $13.2 billion in the fourth quarter of 2023 and the midpoint above consensus of $17.5 billion. Amazon ended the quarter with $88 billion in cash and marketable securities and $54.9 billion in long-term debt.

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