Amazon Q3 results surge with $ billion in revenue; AWS operating income $ billion
Amazon's third quarter revenue grew 37% and checked in at $ billion with Amazon Web Services sales at $ billion.
AWS delivered third quarteroperating income of $ billion compared to Amazon's North America sales of $ billion. Overall, Amazon reported net income of $ billion, or $ a share.
Wall Street was expecting Amazon to report third quarter sales of $ billion with non-GAAP earnings of $ a share.
Not surprisingly, Amazon raised its outlook. Amazon projected fourth quarter sales of $ billion and $ billion with operating income between $1 billion and $ billion. Wall Street was only expecting fourth quarter sales of $70 billion.
In afterhours trading, Amazon shares waffled due to AWS sales growth of 29% from a year ago. That growth trailed Microsoft Azure's 48%, but AWS has a much larger base of revenue.
CFO Brian Olsavsky said:
Our Q3 results largely reflect the continuation of demand trends we saw when we exited the second quarter, with strong demand and sales growth across our major product categories globally, including hardlines, consumables, softlines and media. We also continue to see strong Prime member engagement. Prime members continue to shop with greater frequency and across more categories than before the pandemic began. They continue to expand their usage of Prime's digital benefits, including Prime video. Internationally, the number of Prime members who stream Prime video grew by more than 80% year-over-year in the third quarter, and international customers more than doubled the hours of content they watched on Prime Video compared to last year. We're also reaching more customers with our grocery offerings. In Q3, our year-over-year growth rate of online grocery sales continued to accelerate, and we've continued to offer more convenient options for customers, including grocery pickup, which is now available from all Whole Foods market stores. And just as we saw in Q2, Prime member renewal rates improved in Q3 year-over-year.
Olsavsky also said the following:
- In the first three quarters of , Amazon has spent $ billion in incremental COVID related costs.
- The fourth quarter will bring another $4 billion in COVID costs.
- Some of the company's fulfillment network expansion slipped into the fourth quarter and will be a headwind while they ramp up.
- Amazon has invested nearly $30 billion in capital expenses and finance leases through the first nine months of
Going into Amazon's earnings report, analysts were concerned about whether the company's sales growth was sustainable. Jefferies was expecting net sales growth of 32% in the third quarter. Prime Day will fall in the fourth quarter results.
Capacity will be a big issue, said Jefferies analyst Brent Thill. "The key for Amazon this holiday season will be whether these capacity expansions will be enough to handle an expected surge in demand/orders," said Thill.
It has been a busy few months for Amazon. Recent Amazon headlines include:
Related Topics:Amazon Digital Transformation Data Centers CXO Innovation Storage Sours: https://www.zdnet.com/article/amazon-q3-results-surge-withbillion-in-revenue-aws-operating-incomebillion/
Amazon's cloud division reports 28% revenue growth; AWS head Andy Jassy to succeed Bezos as Amazon CEO
AWS continued to drive much of Amazon's profit. Operating income increased 37% from a year earlier to $ billion, but trailing the $ billion FactSet consensus estimate. That means 52% of the company's operating income can be attributed to AWS, compared with about two-thirds in the same period a year ago.
In the fourth quarter, AWS said it would allow customers to use two of its services for managing software containers in on-premises data centers, rather than exclusively in AWS facilities. It also introduced new services, including one for adding maps to applications and another for remotely using Apple's MacOS operating system.
Nominations are open for the CNBC Disruptor 50, a list of private start-ups using breakthrough technology to become the next generation of great public companies. Submit by Friday, Feb. 12, at 3 pm EST.
WATCH:Cramer on court decision not to require Amazon to reinstate Parler
Amazon's profits, AWS and advertising
People argue about Amazon a lot, and one of the most common and long-running arguments is about profits. The sales keep going up, and it takes a larger and larger share of US retail every year (% in ), but it never seems to make any money. What’s going on?
Well, to begin with, this idea itself is a little out of date: if we zoom in on that net income line, we can see that Amazon’s profitability appears to have shot up in the last couple of years. But what else is going on?
An obvious response here is that all of the profit is coming from AWS: it’s easy to assume that AWS’s profits subsidise losses in the rest of the company. By extension, if anti-trust intervention split AWS apart from the rest of the company, those cross-subsidies would go away and Amazon would have to put up prices, or grow more slowly, or at any rate be a less formidable and aggressive competitor.
That doesn’t really stand up to examination.
AWS has been around in some form since the early s, but Amazon didn’t disclose financials, and the products looked so cheap that many people presumed that it must be making a loss. Then, in , reporting regulations meant that Amazon had to start giving numbers (with historic figures back to ), and we discovered that in fact it was hugely profitable. Hence, in and AWS was the great majority of Amazon’s reported operating income. However, that’s not true anymore - the US business is also now generating substantial operating profit, and, on this basis, it’s only the international business that’s losing money.
There is an easy way to get this wrong if you’re not careful. If you only look at AWS and total operating profit, or aggregate the numbers that Amazon reports into AWS and ‘Other’, the resulting numbers will be misleading: the losses for RoW balance out the profit in the USA and make it look as though AWS is the only profitable business, especially from to The chart below shows the result: close to $3bn of operating profit in the US business in has vanished, and so has a $3bn operating loss in the RoW business. Don’t do this.
This is a great illustration of a broader challenge: Amazon is lots of businesses, but you only see the profitability of the aggregate.
Hence, Amazon reports revenue and operating income for three segments: AWS, USA and Rest of World. The chart below shows the revenue (and also lets you see that AWS is a much higher-margin business).
However, this is not the only kind of disclosure that Amazon gives. If you scroll a little further through the K, you will find that since the company has also disclosed revenue (though not profitability) on a quite different and much more informative basis.
‘First party ecommerce’, where Amazon sells you things on its own behalf on the Amazon website, is now only about half of Amazon’s revenue. Another third comes from providing platforms for other people to do business: AWS is one part of this and Marketplace, or ‘third party services’ is the other.
Amazon lets other companies list products on its website and ship them through its warehouses as the ‘Marketplace’ business. It charges them a fee for this, and it reports the fee as revenue (‘third party services’), and it makes a profit on that. Amazon doesn’t treat the value of the actual purchases as its own revenue, which is in line with US accounting rules, since technically Amazon is only acting as an agent. So, if you buy a $1, TV on Amazon from a third party supplier, Amazon will charge the supplier (say) $ in fees for shipping and handling and commission, and only report $ as revenue. However, it has started stating, in rounded numbers, what percentage third party sales make up of total sales on Amazon - so-called ‘gross marketplace value’ or GMV. Last year, it was about 60%.
As an intellectual exercise, it’s interesting to think about what this would look like if the accounting rules were different and everything sold and processed through Amazon’s website was reported as Amazon revenue. On an operational level, this is pretty much what happens today: Amazon’s own ecommerce product teams are charged an internal fee by the logistics platform and by the digital platform in much the same way that external marketplace vendors are charged a fee. Hence, if these were reported on a like-for-like basis, Amazon’s revenue in would have been close to $bn.
Marketplace gets quite a lot of attention these days, but it’s also worth a quick look at one of the small and insignificant-looking series on that chart - ‘ads and other’. The vast majority of this is Amazon’s business selling placement on the home page and in product search results, which it has built up from almost nothing in the last five years. This is what that business looks like in isolation - it did close to $15bn of revenue in A billion here and a billion there can add up to real money.
Amazon doesn’t disclose profitability for this segment, but we can make some informed (wild) guesses. So: it mostly leverages existing technical infrastructure and engineering resource. It must have meaningful numbers of sales and operations people, but the system itself is mostly automated. It will have knock-on consequences to other parts of the business - for example, it may steer sales to product with higher or lower profitability. And it seems reasonable to assume that it has pretty high margins.
So, for comparison, Alphabet had a operating margin before R&D and TAC (it’s at least arguable that neither apply here) of 57%, and AWS reported operating margin of 26%. On that basis it’s reasonable to suggest that the ad business is contributing as much operating income as everything else apart from AWS, and it’s not absurd to suggest it might be close to matching AWS.
Close to six years ago I wrote a pretty popular essay about Amazon’s business at the time - ‘Why Amazon has no profits’. That made two points.
First, Amazon is not one business - it’s many different businesses, at different stages of maturity and profitability. Some of those businesses are established and highly profitable and others are new and in a start-up loss making phase, but you can’t really see from the outside, because all of the money gets both aggregated and reinvested. You can see exactly the same thing in these charts. Amazon is not a loss-making business that will eventually have to raise prices to make money; rather, it’s many businesses leveraging a common platform and a common balance sheet.
Second, Amazon is run for cash, not net income. Jeff Bezos always says that he runs it for ‘trailing 12 months’ absolute free cashflow’, not net income, and it’s had positive cashflow since , which is before some startup founders were born. It’s a drawback of these charts that they’re based on operating income, not cashflow, but that’s what we’ve got. There’s also a bunch of other interesting things one could dig into - stock compensation, say, or the cash conversion cycle. But the important thing is that if you want to understand a company, it’s worth reading the accounts.
Amazon, AdvertisingBenedict Evans
How Amazon Makes Money In Ways Other Retailers Do Not
By Tricia McKinnon
Many years ago, Amazon stumbled upon a well-known secret, it’s hard to make money in retail. While the Macy’s and Sears of the world duke it out trying to optimize businesses that are in decline, Amazon has entirely different aspirations. Perhaps Amazon’s greatest accomplishment is not how many Prime subscribers it has ( million and counting) but its ability to make billions of dollars in profits.
Amazon made $ billion in profits on $ billion in revenues in $ billion of Amazon’s $ billion in operating income in came from Amazon Web Services (AWS). Who would have thought 26 years ago when Amazon started as a bookseller one day it would be the market leader in cloud computing. Amazon’s cloud computing business is widely successful and is a major contributor to Amazon’s financial position.
There is a near universal obsession with chasing Amazon. Retailers are pouring more and more into their online operations, delivery times are getting faster by the minute and consumers are enjoying better service. But for many retailers it’s a zero-sum game. They are trying to compete with Amazon while Amazon is engaged in an entirely different game. Amazon is like having a cloud services company (Microsoft), an advertising juggernaut (Google), a marketplace (eBay) and traditional retailer (Target) all in one company.
What retailers should take away from Amazon’s success is how to think differently about the business they are in and to experiment with new streams of revenue even if they are outside of retail. If Amazon can do it, so can you. Remember…Amazon started out as a bookseller, at a time when a cloud was well…a cloud. For some inspiration here are the main ways Amazon is generating its profits.
1. Amazon Web Services (AWS)
In , 12 years after Amazon went into business it launched Amazon Web Services (AWS). As Amazon writes on its website: “in , Amazon Web Services (AWS) began offering IT infrastructure services to businesses in the form of web services -- now commonly known as cloud computing. One of the key benefits of cloud computing is the opportunity to replace up-front capital infrastructure expenses with low variable costs that scale with your business. With the Cloud, businesses no longer need to plan for and procure servers and other IT infrastructure weeks or months in advance. Instead, they can instantly spin up hundreds or thousands of servers in minutes and deliver results faster.”
As the Guardian explains with AWS: “you can buy storage space to hold a huge database, bandwidth to host a website, or processing power to run complex software remotely. It lets companies and individuals avoid the hassle of buying and running their own hardware, while also letting them pay for only what they actually use.” Netflix is one of AWS’ most prominent clients, using the service for most of its cloud computing and storage needs.
AWS is now the largest cloud infrastructure business in the world. It is also Amazon’s profitability engine responsible for 63% of Amazon’s operating income in despite only generating % of Amazon’s revenue. Amazon’s retail business had operating margins of -1% in , while AWS’ operating margin was %. As a separate business AWS could have a $ billion dollar valuation. Not bad for a “retailer.”
Facing narrow margins in their core retail business Amazon as well as Walmart and Target have continued to look for other ways to generate profits. Within the last few years advertising revenues have surfaced as a bright spot for these retailers. Digital advertising is a huge business with total ad revenues reaching $ billion in the United States in Most of the digital advertising revenues go to Google (% share) and Facebook (% share) but retailers are trying to change this.
Retailers argue that: “Facebook might know what your customers like, and Google might know what they want, but only we know what they actually buy.” It is estimated that Walmart.com with million monthly visitors has the second highest number of monthly unique website visitors for a US retailer behind Amazon at million giving them a treasure trove of data that Facebook and Google wish they had. Walmart is only now starting to take advantage of this traffic to drive advertising revenue. Walmart CEO Doug McMillon has said: “we have a tiny ad business. It could be bigger.”
Amazon’s “other” category which is primarily compromised of advertising revenues passed the $10 billion mark in and it is estimated that Amazon’s advertising business will generate $17 billion in making it the third largest digital advertiser in the United States. Analysts estimate Amazon’s advertising business has margins as high as 75%. Amazon now has a % share of the digital advertising market in the United States. American retailers are actually playing catch up in this area as Chinese eCommerce giant Alibaba has long had advertising as part of its business model and will generate an estimated $27 billion in advertising revenue in
Aws retail vs profit amazon
How Amazon Makes Money
Amazon.com Inc. (AMZN), the world’s largest online retailer, has grown rapidly in a broad range of businesses including its core e-commerce operations, cloud services,and digital advertising. It also sells products such as the Alexa personal assistant and ecosystem, Kindle e-reader, Fire TV, and movies and television shows through its Amazon Prime Video platform. Amazon's rivals include Walmart Inc. (WMT) and Alibaba Group Holding Ltd. (BABA).
- Amazon makes money through its retail, subscriptions, and web services, among other channels.
- Retail remains Amazon's primary source of revenue, with online and physical stores accounting for the biggest share.
- AWS is Amazon's largest source of operating profits and is growing at a robust pace.
- Amazon's founder Jeff Bezos stepped down as CEO on July 5, , in favor of Andy Jassy, who was previously the CEO of AWS.
Amazon ranks as one of the world's top companies by market value. As of Oct. 1, , Amazon had a market cap of $ trillion.
The company posted net income of $ billion during Q2 of its fiscal year (FY), the three-month period ended June 30, Net income rose % compared to the year-ago quarter.Revenue, which Amazon calls net sales, rose % to $ billion for the quarter. Profits were fueled by robust revenue growth, but received an additional boost from a significant increase in other income.Operating income grew % to $ billion.
Amazon's Business Segments
Amazon divides its business into three segments: North America, International, and AWS.The first two of these segments, North America and International, refer to geographical breakdowns of Amazon's retail business. They generate revenue from retail sales in North America and the rest of the world, as well as from subscriptions and export sales for those areas.
Retail can further be broken down into online stores, comprising the bulk of sales, and physical stores.Company-wide, online stores accounted for $ billion in sales in Q2 FY , or about 47% of net sales, while physical stores generated $ billion in sales, or about 4% of net sales.
Amazon's North America segment dominates its net sales, accounting for $ billion in Q2 FY That is an increase of % from the year-ago quarter and it comprises about 60% of the company's net sales for the quarter.Operating income for the North America segment during the quarter was $ billion, comprising about 41% of the total operating income for all segments. Operating income for the segment rose %.
Aside from retail, the other primary source of revenue for North America is subscriptions, including Amazon Prime, which offers unlimited free shipping, and unlimited streaming of movies, TV shows, and more.
Amazon's International segment consists of Amazon's retail business for consumer products and subscriptions for internationally-focused online stores.It also includes export sales from those stores, but not those from North America-focused online stores.
The segment reported operating income of $ million in Q2 FY , up % compared to the year-ago quarter. It accounts for about 5% of the operating income for all segments. Net sales for the International segment grew % to $ billion, comprising about 27% of total net sales.
Amazon Web Services (AWS)
Amazon Web Services (AWS), launched in , provides services to businesses, government agencies, and academic institutions to store information and deliver content.Amazon says AWS provides an "infrastructure platform in the cloud," for a variety of "solutions" such as hosting applications and websites, providing enterprise IT, and content delivery.
Amazon's AWSsegment generated net sales of $ billion and operating income of $ billion in Q2 FY Net sales grew % while operating income rose % compared to the year-ago quarter.Although net sales from AWS are below net sales for the North America segment, AWS's operating income is substantially higher.The AWS segment accounts for about 13% of total net sales and 54% of operating income for all segments.
Amazon controls about a third of the global cloud market, substantially more than its next closest competitor. AWS's biggest rivals are Microsoft Corp.’s (MSFT) Azure and Alphabet Inc.’s (GOOGL) Google Cloud.
Amazon's Recent Developments
On Sept. 14, , Amazon announced that it was planning to hire , fulfillment and transportation workers across the U.S. in addition to the 40, corporate and technology jobs it announced earlier in the month. The company noted that it has opened new fulfillment centers, sortation centers, regional air hubs, and delivery stations in the U.S. in
On Aug. 10, Amazon announced it would pay customers who suffer injury or property damage due to defective goods sold on the company's U.S. platform. This shift in policy aims to stem a growing number of lawsuits against Amazon over the company's potential liability for bad products sold by independent merchants on its site. As of Sep. 1, Amazon will pay valid claims up to $1, at no cost to sellers. More than 80% of injury and damage cases on the Amazon platform are within that range.
How Amazon Reports Diversity and Inclusiveness
As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of Amazon and its commitment to diversity, inclusiveness, and social responsibility. We examined the data Amazon releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.
Below is a table of potential diversity measurements. It shows whether Amazon discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether Amazon breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.
|Amazon Diversity & Inclusiveness Reporting|
|Race||Gender||Ability||Veteran Status||Sexual Orientation|
|Board of Directors|
|General Management||✔ (U.S. Only)||✔|
AWS is now a bigger part of Amazon's overall success than ever
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By Barclay Ballard
There's good news all round for AWS as Andy Jassy prepares to leave for the Amazon top job after Bezos steps down
AWS continues to represent an increasingly large part of Amazon’s overall success after financial results revealed impressive revenue growth in the fourth quarter of last year. The news comes shortly after the shock announcement that long-standing company CEO Jeff Bezos will be stepping down.
In the fourth quarter of , AWS reported revenue growth of 28%, which although less than analyst expectations, still represented an increase of $ billion. AWS also continues to make up a sizeable proportion of Amazon’s total profits. According to industry estimates, AWS contributes approximately 52% of Amazon’s operating income.
Despite the strong figures, Amazon is well aware that it faces stern competition from Microsoft and Google in the cloud computing space. Both companies saw their cloud divisions grow faster than AWS during the fourth quarter, although AWS remains the industry leader.
AWS will also have to continue its expansion under new leadership after it was confirmed that Andy Jassy, founder of AWS, would take over from Bezos as Amazon CEO in the third quarter of this year. Bezos, meanwhile, is set to become Amazon’s executive chairman.
Although Jassy’s departure will have a major impact on AWS’s future trajectory, the fact that he will now be in charge of Amazon’s entire output continues to bode well for the cloud solution. Under Jassy’s leadership, AWS has become the dominant player in the cloud computing space, holding around 30% of the market.
In addition to its top-line financial news, Amazon also confirmed a few of the ways that it empowered SMEs during the fourth quarter of As well as launching small business accelerator programs, the firm also provided more than $1 billion in AWS credits during to support start-ups targeting rapid growth.
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