Amazon.com (AMZN Quick QuoteAMZN - Free Report) delivered third-quarter 2024 earnings of $1.43 per share, which grew 52.1% from the year-ago quarter, beating the Zacks Consensus Estimate by 25.44%.

AMZN’s net income increased to $15.3 billion in the third quarter compared with $9.9 billion in the year-ago quarter.

Net sales of $158.8 billion rose 11% year over year. The figure surpassed management’s guidance of $154-$158.5 billion and beat the Zacks Consensus Estimate by 1.15%.

Excluding the $0.2 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 11% compared with the third quarter of 2023.

Top-line growth was primarily driven by strength in Amazon Web Services (“AWS”) segment. Solid momentum across the North America and International segments was a positive. Growing advertising business also benefited the company in the reported quarter.

AWS’ growing investments in generative AI are likely to continue aiding it in gaining momentum among cloud customers in the near term.

Amazon’s strong global presence, growing Prime momentum and increasing efforts toward gaining strong traction among small and medium businesses are likely to drive its financial performance in the days ahead.

However, geopolitical tensions, foreign exchange headwinds, recessionary fears, inflation, interest rates and regional labor market constraints are concerning.

Top-Line Details

Product sales (42.5% of sales) increased 7% year over year to $67.6 billion. Service sales (57.5% of sales) rose 14.2% from the year-ago quarter to $91.2 billion.

By segment, North America revenues (60.1% of sales) rose 8.7% from the year-ago quarter to $95.5 billion, which beat the Zacks Consensus Estimate by 0.31%.

International revenues (22.6% of sales) increased 11.7% year over year to $35.8 billion, which beat the consensus mark by 5.53%.

AWS revenues (17.3% of sales) rose 19.1% year over year to $27.4 billion, which missed the consensus mark by 0.46%. Solid momentum in Amazon Bedrock, owing to expanding Large Language Model offerings, continued to boost the adoption of AWS.

In the reported quarter, Amazon launched new foundation models in Amazon Bedrock and Amazon SageMaker, including AI21 Labs’ Jamba 1.5 family, Anthropic’s upgraded Claude 3.5 Sonnet, Meta’s Llama 3.2, Mistral Large 2 and multiple Stability AI models.

The company also launched Oracle Database@AWS for customers to easily and quickly migrate Oracle (ORCL Quick QuoteORCL - Free Report) workloads to dedicated infrastructure on AWS with minimal to no database or application changes.

Amazon entered into a strategic collaboration with Databricks to accelerate the development of custom models built with Databricks Mosaic AI on AWS, and for Databricks to leverage AWS Trainium chips as the preferred AI chip to help customers improve price-performance when building generative AI applications.

The company signed AWS agreements with several large enterprise companies, such as The Australia and New Zealand Banking Group Limited, Booking.com, Capital One, Datadog (DDOG Quick QuoteDDOG - Free Report) , Epic Games, Fast Retailing, Itaú Unibanco, Luma AI, National Australia Bank, Sony, T-Mobile, Toyota and Veeva.

Amazon also announced plans for AWS to invest £8 billion over five years in the United Kingdom, supporting 14,000 jobs annually.

Strengthening relationships with third-party sellers remained another positive. In the reported quarter, sales generated by third-party seller services rose 10% on a year-over-year basis to $37.8 billion, which lagged the Zacks Consensus Estimate by 0.56%.

Sales from robust advertising services increased 19% year over year to $14.33 billion, which beat the consensus mark by 1.06%.

AMZN experienced 5% year-over-year growth in its physical store sales, which were $5.22 billion in the reported quarter. The figure beat the consensus mark by 1.39%.

The company’s online store sales were $61.4 billion, up 7% year over year. The figure beat the Zacks Consensus Estimate by 3.39%.

Prime Services Boost Subscription Revenues

Strength in Prime on the back of ultrafast delivery services, and expanding original content and an international slate of content on Prime Video were positives. Amazon witnessed 11% year-over-year growth in its subscription services sales, which were $11.2 billion in the reported quarter. The figure beat the consensus mark by 1.32%.

This Zacks Rank #3 (Hold) company held its annual Prime Big Deal Days shopping event, with record sales, number of items sold, and Prime member participation, saving Prime members more than $1 billion with deals across its Store. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has its first-ever fuel savings offer for Prime, saving U.S. members 10 cents a gallon on fuel at approximately 7,000 bp, Amoco, and ampm locations.

Amazon launched Season 2 of The Lord of the Rings: The Rings of Power to positive reviews from customers and critics alike, ranking as Prime Video’s most-watched returning season ever by hours watched. The company drew more than 17 million viewers to the Cowboys-Giants Thursday Night Football game, the most-streamed NFL regular season game ever. Amazon added Apple (AAPL Quick QuoteAAPL - Free Report) -owned Apple TV+ to Prime Video’s collection of more than 100 add-on subscription channels in the United States.

Operating Details

Operating expenses were $141.4 billion, up 7.3% from the year-ago quarter. As a percentage of revenues, the figure contracted 310 basis points (bps) on a year-over-year basis to 89%.

The cost of sales, fulfillment and technology and infrastructure expenses increased 7.9%, 10.5% and 4.9% year over year to $80.9 billion, $24.6 billion and $22.2 billion, respectively.

Sales and marketing, general and administrative, and other operating expenses were $10.6 billion, $2.71 billion and $262 million, up 0.5%, 5.9% and 7.4% year over year, respectively.

Overall operating income was $17.4 billion, up 55.6% from the year-ago quarter.

The AWS segment’s operating income was $10.4 billion compared with an operating income of $7.0 billion in the third quarter of 2023.

The North America segment’s operating income was $5.7 billion compared with an operating income of $4.3 billion in the third quarter of 2023.

The International segment’s operating income was $1.3 billion against an operating loss of $0.1 billion in third-quarter 2023.

Balance Sheet & Cash Flow

As of Sept. 30, 2024, cash and cash equivalents were $75.09 billion, up from $71.2 billion as of June 30, 2024.

Marketable securities totaled $12.9 billion as of Sept. 30, 2024, down from $17.9 billion as of June 30, 2024.

The long-term debt was $58.3 billion at the end of the reported quarter, down from $54.9 billion at the end of the previous quarter.

In the third quarter, AMZN generated $25.9 billion of cash from operations, up from $25.3 billion in the second quarter.

Operating cash flow increased 57% to $112.7 billion for the trailing 12 months compared with $71.7 billion for the trailing 12 months ended Sept. 30, 2023.

Free cash flow increased to $47.7 billion for the trailing 12 months compared with $21.4 billion for the trailing 12 months ended Sept. 30, 2023.

Guidance

For fourth-quarter 2024, Amazon expects net sales between $181.5 billion and $188.5 billion. Net sales are expected to grow 7-11% from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for net sales is pegged at $157.07 billion.

Management projects an unfavorable foreign exchange impact of 10 bps.

Operating income is anticipated between $16 billion and $20 billion.