---
title: "Amazon warns of weak consumer spending, Q3 cloud growth slower than competitors, stock falls after-hours despite 5% initial increase | Earnings Report"
type: "News"
locale: "zh-CN"
url: "https://longbridge.com/zh-CN/news/100949000.md"
description: "Amazon's third-quarter revenue increased by 13%, exceeding expectations, and profits were three times higher than last year. However, the midpoint of the revenue guidance range for the fourth quarter is lower than expected, suggesting that the consumption during the year-end holiday shopping season may not be strong. The growth rate of cloud revenue is less than 13%, although it is the first time it has accelerated since the end of 2021, it is significantly weaker than its competitors Microsoft and Google, which has raised concerns on Wall Street."
datetime: "2023-10-26T23:05:50.000Z"
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  - [en](https://longbridge.com/en/news/100949000.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/100949000.md)
---

> 支持的语言: [English](https://longbridge.com/en/news/100949000.md) | [繁體中文](https://longbridge.com/zh-HK/news/100949000.md)


# Amazon warns of weak consumer spending, Q3 cloud growth slower than competitors, stock falls after-hours despite 5% initial increase | Earnings Report

On Thursday, October 26th, after the market closed, Amazon, the tech giant that is globally promoting e-commerce and cloud services, released its Q3 2023 earnings report.

Amazon's Q3 revenue and profits exceeded expectations. Although its cloud business revenue increased year-on-year, it was not as strong as its competitors Microsoft and Google. Additionally, the midpoint of its revenue guidance for Q4 fell short of expectations. After the earnings report was released, Amazon's stock initially rose more than 5%, but then fell during the conference call.

Amazon's stock fell 1.5% on Thursday, marking a nearly 10% decline since entering a downward trend last Monday. It also reached a five-month low, down 18% from the 52-week high of $145.86 reached on September 14th, entering a technical correction range.

However, Amazon's stock has still risen more than 42% year-to-date, outperforming the S&P 500's nearly 8% gain and the Nasdaq's over 20% gain, making it one of the top-performing large-cap tech stocks this year.

Among the 55 analysts tracked by FactSet, 52 analysts have given a "buy" rating, while 3 analysts recommend "hold". No one recommends selling, and the average target price is $172.87, representing a potential upside of 45%.

## Amazon Q3 Revenue Increases 13% Exceeding Expectations, Profits Triple Compared to Last Year, but Q4 Guidance Slightly Disappointing, Raising Consumer Concerns

The earnings report shows that Amazon's Q3 revenue increased 13% year-on-year to $143.1 billion, surpassing market expectations of an 11% year-on-year increase to $141.4 billion. It also increased 6.5% quarter-on-quarter, indicating a slightly accelerated year-on-year revenue growth compared to the past few quarters.

The earnings per share for the quarter were $0.94, far exceeding the expected $0.58 and triple the $0.28 of the same period last year, representing a growth of nearly 236%. Operating profit was close to $11.2 billion, significantly surpassing the expected $7.7 billion, and the operating profit margin of 7.8% far exceeded the expected 5.46%.

Analysts believe that the profit margins of the company's North American and international businesses have improved, reaching the highest level in over two years, which has increased the overall blended profit margin to a new high since mid-2021.

Prior to this, Amazon's guidance for Q3 performance was sales between $138 billion and $143 billion, and operating profit between $5.5 billion and $8.5 billion. This indicates that the Q3 report has surpassed the company's best expectations.

Andy Jassy, who took over as CEO in mid-2021, succeeding founder Jeff Bezos, stated that the strong Q3 performance was reflected in further improvements in the service costs and delivery speed of the retail business, continued stable growth of the AWS cloud business, strong growth in advertising revenue, significant increases in overall operating profit and free cash flow, and most importantly, providing the fastest delivery speed in the 29-year history of Prime for Prime customers. In addition to the growth in revenue from various business lines, Amazon's higher-than-expected profit is also attributed to significant cost reductions. Since last autumn, Amazon has laid off 27,000 employees, closed unprofitable businesses, and readjusted the priority of resource allocation in order to maintain organizational efficiency and strength during a period of high interest rates and inflation, in response to the threat of macroeconomic impact on consumer and corporate spending.

However, Amazon's guidance for the fourth quarter is not as satisfactory. Zerohedge, a financial blog known for its sharp tongue, pointed out that this is mainly due to the downward revision of the lower limit of revenue outlook. Amazon expects its net sales in the fourth quarter to be in the range of $160 billion to $167 billion, with a midpoint expectation of $163.5 billion, which is an increase of less than 10% compared to the same period last year, not far from the historically lowest growth rate, and lower than the market's expectation of $166.6 billion:

> "The slightly lower-than-expected guidance is the latest sign of weak consumer spending as we enter the heavyweight year-end holiday shopping season. The CFO also warned during the conference call that customers are still cautious about prices, which completely reversed the after-hours gain of Amazon's earnings report."
> 
> ![Image](https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/f7dfc7cd-c693-4405-ac57-c04df5843db4.jpeg?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg)

Previously, the market expected Amazon's earnings per share to be $2.07 this year, turning a loss of $0.27 per share last year into a profit, with expected annual revenue of $538.1 billion, a YoY growth of 4.7%.

Some analysts pointed out that if Amazon successfully turns a profit per share this year, it will not only demonstrate the performance boost from the two Prime Day promotional events, but also benefit from the cost control strategy implemented by the company to adjust its business scale, as its operating profit margin has been increasing quarter by quarter.

The most anticipated focus in this Amazon earnings report is whether the revenue growth of AWS cloud business can accelerate again.

Although Piper Sandler analyst Thomas Champion believes that "flat growth" for Amazon's cloud business may be more realistic based on the revenue data of Microsoft and Google Cloud this week, the market generally expects that Amazon AWS's revenue will increase by 12.7% YoY to $23.1 billion, an MoM increase of about 5% from the previous quarter's $22.1 billion.

The financial report shows that Amazon AWS did achieve sales of $23.1 billion in the third quarter, which is in line with expectations (some media outlets also reported that the market expectation was $23.2 billion), representing the end of the previous six consecutive quarters of slowing growth for AWS and a return to accelerated expansion for the first time since the fourth quarter of 2021. However, the growth rate of less than 13% is still not considered high. The year-on-year growth rate of business revenue, which has made a significant contribution to Amazon's profits, has dropped from 39.5% in the fourth quarter of 2021 to 12.2% in the second quarter of this year. The slowdown in growth mainly reflects customers' increased focus on "optimizing" cloud spending, consistent with comments from Google management.

AWS's operating profit in the third quarter also increased by more than 29% year-on-year to $7 billion, exceeding expectations by $1.3 billion, and reaching the highest level in the history of the business. The profit margin soared to 30.25%, the highest in two years.

Bullish views point out that as corporate spending budgets loosen and industries pay more attention to AI workloads, the growth of Amazon AWS will soon accelerate. The frenzy surrounding generative AI is leading to larger cloud computing workloads, which is a direct benefit to public cloud providers such as AWS, and Amazon ranks first in this field ahead of Microsoft and Google.

**However, the market has also noticed that** the cloud business revenue growth rate of less than 13% is far behind the 29% revenue growth of Microsoft Azure in the third quarter, as well as the 22% revenue growth of Google Cloud, which seems to indicate that Amazon is losing some market share in the cloud field.

Amazon management mentioned artificial intelligence in the financial report statement:

> "The AWS team continues to innovate and deliver rapidly, especially in the field of generative AI. Our custom AI chips, Amazon Bedrock, are the simplest and most flexible way to build and deploy generative AI applications. Our coding partner CodeWhisperer gives enterprises engineers who are equivalent to experienced engineers with knowledge of all proprietary code, and is driving the development momentum of customers such as Adidas, Booking.com, GoDaddy, LexisNexis, Merck Pharmaceuticals, Royal Philips, and United Airlines. All these large companies are starting to run generative AI workloads on AWS. We are excited about what is about to happen."

## **Core e-commerce business continues to recover, physical store sales slightly weaker, advertising revenue exceeds expectations, maintaining strong competitiveness in the competition**

At the same time, the continuous recovery of Amazon's flagship e-commerce business and whether the advertising department can maintain its strong position are also highlights of this financial report.

The sales of the core e-commerce business in the third quarter increased by 7% year-on-year to approximately $57.3 billion, higher than the expected $57 billion, and better than the 4% growth in the previous quarter. Amazon previously referred to the Prime Day in July as its largest promotional event in history.

Other data is mixed. Net sales of physical stores were $4.96 billion, slightly lower than the expected $4.99 billion; third-party seller services revenue increased by 20% year-on-year to $34.34 billion, higher than the expected $33.4 billion; subscription services revenue increased by 14% year-on-year to $10.17 billion, higher than the expected $10.13 billion. In the third quarter, advertising revenue increased by 26% YoY to $12.1 billion, surpassing the expected $11.6 billion. Analysts believe that this indicates that digital advertising is still a bright spot for Amazon, as third-party sellers and major brands have increased their advertising spending to enhance their visibility in an increasingly competitive market. As a result, Amazon's advertising revenue growth far exceeds that of Google (9%), Facebook (23%), and Snap (5%).

In the second quarter, Amazon not only achieved significant improvements in revenue and profitability, but also made significant progress in operating cash flow, EBITDA (earnings before interest, taxes, depreciation, and amortization), and net profit. Its North American business, which had a loss of $627 million in the second quarter of last year, turned around and made a profit of $3.21 billion in the second quarter of this year, driven by high-profit advertising revenue and higher unit sales.

Investors are eager to know whether the company can maintain its strong momentum to support the long-term investment thesis. People also want to know whether Amazon's recent investments in AWS and artificial intelligence can generate returns and higher growth rates.

At the beginning of this year, Amazon lagged behind Microsoft and Google in the race to develop and deploy AI technology, but later caught up by investing an additional $4 billion in the San Francisco startup Anthropic and releasing a generative AI application called Bedrock, directly competing with OpenAI's ChatGPT and Google's Bard. People hope that AI can drive the growth of cloud services and boost e-commerce sales and profit margins.

Wall Street is optimistic about the prospects of advertising opportunities and improvements in e-commerce profit margins, and expects AWS to continue to accelerate its growth. However, there are concerns about regulatory challenges.

Before the earnings report was released, Wall Street was generally optimistic about Amazon.

Jason Helfstein, an analyst at Oppenheimer, called Amazon his "top large-cap stock" because the company has "more affluent consumers, advertising opportunities, huge potential for improvement in e-commerce profit margins, and the easing of headwinds for AWS" compared to Google and Meta.

Justin Post, an analyst at Bank of America Global Research, also mentioned that aggregated data from credit and debit cards shows that online spending in the third quarter increased by 1% compared to the same period last year, an increase of two percentage points from the second quarter. Logistics efficiency and advertising spending are also more constructive:

"In 2024, the two key factors for Amazon are whether AWS can accelerate its recovery to a high-growth range of 15% to 20%, and whether North American retail profit margins can increase to 5% (note: the current market estimate for the third-quarter North American operating profit is 3.6%).

At the same time, we believe that AWS will accelerate in the fourth quarter of this year, and the growth will further accelerate in the first quarter of 2024, benefiting from the relaxation of the enterprise cloud spending optimization cycle and the incremental demand for artificial intelligence." Morgan Stanley analyst Doug Anmuth also believes that AWS will accelerate its growth in the second half of this year along with its retail business. He expects Amazon's monetization of its generative AI efforts, such as Bedrock, which helps other companies build large language models, to become more meaningful next year:

"Continued resilience in US consumer spending will drive sustained growth in Amazon's retail sales, healthy expansion of North American profit margins, and a year-on-year decline in total capital expenditure, all of which will lead to significant changes in free cash flow this year."

However, Goldman Sachs slightly lowered its target price to $175, stating that its cloud computing industry survey conducted in September showed that AWS's third-quarter revenue will grow steadily. However, competition pressure from low-cost retailers such as Temu and Shein, as well as rising energy costs, will pose challenges to Amazon's physical stores and AWS business. For every 10-fold increase in energy costs, pre-tax profits will decrease by $200 million to $300 million.

Scott Devitt, an e-commerce stock analyst at Wedbush, also summarized:

"Before the third-quarter report, investors had mixed views on Amazon, with debates focusing on: 1) the growth trajectory of AWS and the company's overall AI strategy; 2) regulatory challenges and the outcome of the Federal Trade Commission's antitrust lawsuit against the online retail industry; 3) potential retail profit pressure due to rising oil prices; and 4) ongoing competition from Temu, Shein, and TikTok e-commerce."

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