Amazon’s (NASDAQ: AMZN) third-quarter earnings report for 2024 showed robust revenue growth and margin expansion across multiple business segments, reflecting both the company’s adaptability and persistent competition in its core markets. Amazon reported $158.9 billion in net sales for the quarter ending September 30, an 11% increase from $143.1 billion a year ago, surpassing analysts’ expectations.
This was in part due to a surge in retail and advertising demand, alongside the continued dominance of Amazon Web Services (AWS), the company’s highly profitable cloud division. The revenue increase of 11% also represents a slight acceleration from last quarter’s 8% growth, suggesting a recovery in consumer demand and the effectiveness of Amazon’s strategic adjustments.
Retail sales, including North America and International, remained strong with North American segment sales up 9% year-over-year to $95.5 billion, compared to $87.9 billion in Q3 2023. This growth reflects Amazon’s success in appealing to budget-conscious shoppers by focusing on lower-cost items and emphasizing convenience factors such as faster shipping options, even as competitors like Shein and Temu intensify their market penetration.
However, the quarter-to-quarter growth in North American sales from Q2 to Q3 was just over 6%, a modest uptick in light of Amazon’s aggressive promotional events, suggesting that the current economic climate may be tempering the pace of consumer spending growth.
Meanwhile, international retail sales grew 12% year-over-year, reaching $35.9 billion, which includes the impact of currency fluctuations. Without these fluctuations, the growth rate remains solid at approximately 11%, yet it raises questions about the strength of Amazon’s global brand position amidst heightened competition from local and international players.
Amazon’s operating income for the quarter surged to $17.4 billion, a 55% increase from $11.2 billion in Q3 2023, demonstrating a notable improvement in operational efficiency. The company attributed this rise to margin expansions in both its North American and international retail businesses, with North America’s operating margin climbing to 5.9% from 4.9% a year earlier and International’s reaching 3.6%, a significant leap from last year’s 0.3%.
However, the margin gains in North America from Q2 to Q3 this year, moving from 5.6% to 5.9%, were marginal, indicating that further cost control measures may be necessary to maintain profitability in the face of inflationary pressures and increased logistics expenses as the holiday season approaches.
AWS remains a pivotal component of Amazon’s earnings, contributing $27.5 billion in revenue, a 19% increase from $23.1 billion in Q3 2023. This marks AWS’s quickest pace of growth in seven quarters, signaling an effective response to recent investments in AI infrastructure and competitive pressures from rivals like Microsoft Azure and Google Cloud.
The segment’s operating income rose sharply to $10.4 billion from $7.0 billion last year, pushing AWS’s operating margin to 38.1%, up from 30.3% in the same period last year. Compared to last quarter, AWS margins showed an uptick from 35.5%, signaling strong cost management and pricing power within this segment.
Yet, as AWS’s contribution to Amazon’s overall revenue grows, its slower-than-expected revenue growth relative to ambitious Wall Street expectations highlights the competitive dynamics and potential market saturation that could cap AWS’s growth trajectory in the coming quarters.
Advertising revenue, another fast-growing business segment for Amazon, rose 19% year-over-year to $14.3 billion, narrowly surpassing analysts’ expectations of $14.25 billion. This growth reflects Amazon’s aggressive integration of ad slots on its Prime Video streaming service and physical stores, a strategic move to diversify revenue streams and capitalize on its extensive customer base. Amazon’s expansion of ad space on Prime Video could add significant long-term value to the advertising division, especially as competitors in streaming such as Netflix and Disney face ad revenue pressures.
Capital expenditure also saw a dramatic year-over-year increase, with Amazon investing nearly $75 billion compared to $48.4 billion in 2023, a leap primarily aimed at expanding AWS and supporting the development of artificial intelligence technologies. CEO Andy Jassy described AI as a “once-in-a-lifetime opportunity,” positioning Amazon to compete with industry peers who have similarly ramped up investments in generative AI.
Although this investment is expected to yield substantial returns in the long term, it does elevate short-term financial risk, especially if AI market adoption or AWS growth does not meet expectations. The heavy expenditure has impacted Amazon’s free cash flow, which totaled $47.7 billion over the past 12 months—a significant increase from $21.4 billion in the previous year, yet still below the peak levels some analysts had anticipated given the rate of revenue growth.
Despite these gains, Amazon’s fourth-quarter revenue forecast fell between $181.5 billion and $188.5 billion, with the midpoint of this range slightly below analysts’ average estimate of $186.16 billion. This conservative outlook indicates caution from Amazon regarding the unpredictable holiday shopping season, highlighting potential challenges such as softened consumer spending, rising costs, and lingering inflation concerns that may impact profitability.
Amazon last traded at $186.19 on the NASDAQ.
Information for this story was found via Reuters, Variety, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
