Amazon profits beat sales estimates but miss cloud target

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

Amazon shares rose as much as 5% in after-hours trading, but those gains were offset as investors digested the report.

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

There have been silver linings, however: AWS sales are up 12% year-over-year, and the division’s operating income is on the rise as well, reaching $7 billion, an increase of nearly 29% from last year.

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

AWS’s growth has been under the microscope this year, a topic that “got the most airtime with investors,” JPMorgan’s Doug Anmuth wrote before earnings. On a call with the media on Thursday, Amazon CFO Brian Olsavsky said he did not believe AWS’s growth had completely stalled, instead describing the cloud business as being in a “delicate” transition.

The company is slowing its moves to cut costs, as it looks to serve more customers and monetize its services.

Earnings rundown

Here are the key numbers reported by Amazon, compared to analyst estimates compiled by Bloomberg:

Net sales: Actual $143.08 billion, compared to expected $141.56 billion

AWS Net Sales: $23.06 billion actual, compared to $23.13 billion expected

Earnings per share: Actual $0.94, vs. expected $0.58

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Operating margin: 7.8% actual versus 5.46% expected

Fourth quarter net sales: $160-167 billion actual, compared to $166.57 billion expected

Currently, analyst recommendations for Amazon stand at 63 Buys, 2 Holds, and 0 Sells.

“We experienced a strong third quarter as cost-to-serve and speed of delivery in our stores business took another step forward, our AWS growth continued to stabilize, our advertising revenues grew strongly, and total operating income and free cash flow increased significantly.” Amazon CEO Andy Jassy said in a statement.

Looking ahead, keep an eye on those operating margins. Amazon’s operating margins have been on the rise — rising 32% between the first and second quarters, and hitting a notable pace in the third quarter — suggesting that Amazon’s post-pandemic efficiency efforts have been successful.

“We analyzed ten years of historical data and identified all periods in which Amazon’s operating margin increased or decreased based on two or more consecutive quarters,” Wedbush’s Scott Devitt wrote before earnings. “Then we compared stock price returns over those periods and found that on average, Amazon shares rose 84% when operating margins rose versus just 1% when operating margins fell.”

This is breaking news, check back for updates.

Allie Garfinkel He is a senior technology correspondent at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn.

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