On October 31st local time, Amazon released its Q3 2024 financial report, which showed that both revenue and profit increased during the reporting period, exceeding market expectations.
Fundamentally speaking, revenue and profit growth are the biggest highlights of Amazon's Q3 2024 performance. The financial report shows that as of September 30, 2024, Amazon's operating revenue reached $158.9 billion, an 11% increase from $143.1 billion in the same period last year. Its net profit reached $15.3 billion, a 55% increase from $9.9 billion in the same period last year.
Amazon's quarterly revenue performance, data from Futu Niu Niu
Amazon's quarterly profit performance, data from Futu Niu Niu
Based on Amazon's previous performance, the increase in revenue and net profit this time is not significant, but it is clear that investors are satisfied with the new report card submitted by Amazon. In after hours trading, Amazon's stock price rose by more than 5%.
Amazon also gave a more optimistic outlook for the next quarter, stating that it expects revenue to be between $181.5 billion and $1885 billion in Q4 2024, a year-on-year increase of 7% to 11%. Operating profit is expected to be between $16 billion and $20 billion, indicating that performance will continue to improve in the next quarter.
The performance of e-commerce business is mixed: growth rate increases, market competition intensifies
From the perspective of business composition, retail remains the main driver of Amazon's revenue, with e-commerce still being Amazon's "cash cow" business, and showing better growth during the reporting period than before. Data shows that in Q3 2024, the net sales of online stores reached 61.41 billion US dollars, exceeding the expected 59.64 billion US dollars, a year-on-year increase of 7.2%, which is an improvement compared to the 4.58% growth rate in the second quarter of 2024 and the 6.99% growth rate in the first quarter of 2024.
However, the growth rate of Amazon's e-commerce business in 2024 is significantly lower than the overall market growth rate. According to a survey report on the global e-commerce market value and future growth trends released by Stocklytics, the e-commerce market value is expected to reach $4.11 trillion in 2024, with a year-on-year increase of 15% compared to 2023.
Behind the slow growth, Amazon is facing significant challenges from its competitors. Especially from emerging cross-border e-commerce platforms such as Temu and SHEIN, Amazon's market position is being threatened. In 2023, Temu's unique visitor count has reached 467 million, ranking second in the global e-commerce platform traffic, only behind Amazon.
In order to cope with new challenges, Amazon is gradually implementing a low price strategy in 2024, competing with Temu and SHEIN in the "ultimate cost-effectiveness". According to foreign media reports, Amazon is currently testing a low price mall project, directly benchmarking Temu, mainly selling white label products, and directly shipping from Chinese warehouses to the US market.
Another noteworthy data is the advertising and third-party merchant service revenue related to e-commerce, which have been important sources of growth in the past. During the reporting period, both growth rates slowed down. The financial report shows that in Q3 2024, the net sales of the advertising business increased by 19% year-on-year to $14.3 billion, compared to 19.5% in the previous quarter and 24% in the first quarter, indicating a decrease in growth rate.
In addition, the net sales of third-party merchant services were $37.86 billion, a year-on-year increase of 10%, lower than the expected $38.22 billion, and the growth rate was lower than the previous two quarters.
Amazon's attitude towards competition is relatively optimistic. During the earnings conference, executives stated, "We only account for 1% of the global retail market, and 80% to 85% of the market share exists in offline entities. The future changes in this proportion will present opportunities for both us and our competitors, and there is no one size fits all situation
But this also cannot avoid the significant pressure that Amazon's retail business is facing from competitors and the market. Some Wall Street analysts are concerned about the uncertainty of Amazon's core retail business, while others say that the slowdown in retail profit margins will affect the overall increase in the company's profit margins.
AWS's strong growth supports expectations for Amazon's stock price to rise
Unlike the complex situation currently faced by Amazon's retail business, generative AI is playing a positive role in Amazon's cloud business revenue. In Q3 2024, Amazon Web Services (AWS) cloud business revenue and profit margins have achieved rapid growth.
Specifically, in terms of revenue, the year-on-year growth rate of AWS cloud business revenue has been continuously increasing for five consecutive quarters. The report shows that in Q3 2024, AWS net sales increased by 19% year-on-year to $27.45 billion, an increase from 18.7% (Q2 2024) and 17.25% (Q1 2024) in the previous two quarters, and higher than the full year growth rate in 2023. This also means that AWS is expected to exceed $100 billion in revenue for the full year of 2024.
In terms of profit performance, AWS not only contributed 60% of the company's overall operating profit, but also created a new high in operating profit margin since 2014. The report shows that in Q3 2024, AWS cloud business's operating profit reached 10.4 billion US dollars, exceeding analysts' expectations of 9.12 billion US dollars, accounting for nearly 60% of the company's operating profit, an increase of nearly 48.6% compared to the same period last year's 7 billion US dollars; Its operating profit margin rose from 35.5% to 38.1%, creating a new high.
Amazon stated that the reasons for AWS's profit margin growth are mainly reflected in three aspects: accelerated revenue growth and cost efficiency improvement, extended server lifespan, and optimization of human resources and infrastructure cost management. Amazon President and CEO Andy Jassy also announced during the earnings call that he will share over 100 new cloud infrastructure and AI features at the AWS re: Invent event one week after Thanksgiving.
Generative AI is becoming an important weight for AWS to solidify its position at present. However, Amazon did not disclose the revenue generated by this generative AI. Andy Jassy only revealed a vague set of numbers during the conference call, stating that "generative AI has already generated billions of dollars in revenue and is growing at a double-digit year-on-year growth rate.
The cost investment behind the impressive growth is also worth paying attention to. As is well known, the growth of large models comes at a huge cost, with increased server capital expenditures required to handle artificial intelligence services. Amazon stated that it expects capital expenditures to reach $75 billion in 2024, an increase of approximately 55% from $48.4 billion in 2023. Andy Jassy stated that the company expects expenditures to "exceed this number" by 2025.
Andy Jassy is also optimistic about the impact of large-scale investment in AI on profit margins, stating, "As the market matures, the field of general artificial intelligence will also see very healthy profit margins
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