Amazon Q3 Earnings: AI a "Once in a Lifetime" Opportunity
What Are the Key Financial Highlights from Amazon’s Q3 Earnings?
Profit is growing faster than revenue, and units are growing faster than sales. A few tidbits:
Unit volume growing 12% y/y
Revenue grew 11% y/y
Online store sales grew 8% y/y – one of the higher numbers in the last two years.
NA operating margin up 100bps y/y
How Does Amazon’s Approach Compare to Walmart’s Strategy?
From the beginning of 2024, Walmart actually called it first. Their plan was to grow profits faster than sales. In an uncertain economy, it’s a formula where "you control what you can control," and no one was sure they would be able to control the consumer. So, where is the consumer now?
Amazon says the consumer is still looking for deals and is very price-conscious.
How Is Amazon Disrupting Convenience Stores and Pharmacies?
Amazon's largest growth drivers are everyday essentials: health, beauty, personal care, and non-perishable grocery.
In short, Amazon is not only eating the convenience store (have you seen the chaos at Walmart/CVS? Yes, self-inflicted, but also, hello 'Zon), it’s also eating the middle of the grocery store.
These items tend to be more first-party (1P) items. Not coincidentally, 1P units gained against 3P unit share for the first time in recent memory. These are replenishables, driving higher frequency and unit volume than sales volume.
Expect this trend to continue because Amazon’s logistics performance is only getting faster. In one sense, Amazon is delivering what Quick Commerce promised.
Why Is Amazon Web Services (AWS) Called a "Once in a Lifetime" Opportunity?
"Once in a Lifetime" Amazon Web Services (AWS) On Fire
Some tidbits to prove the point:
Andy Jassy called this a once-in-a-lifetime opportunity. Think Amazon will underinvest in AI? Investors look out – CapEx ahead.
AWS is now a $110B run-rate business.
AWS margins are up to 38% (just think about that).
AI business is growing at triple-digit percentages and is already a multi-billion-dollar business, with demand growing faster than supply.
They have gone back to Amazon's custom silicon manufacturer four times already to make more. AI inference, in particular, is expensive, and they can save people a lot versus NVIDIA.
$75B in CAPEX this year, with more next year, most of which is AWS.
What Are the Key Challenges for Amazon in Advertising and Low-Cost Retail?
Is Amazon’s Advertising Growth Slowing?
Is advertising getting slower because 3P unit growth is slightly decelerating (compared to 1P) at the moment? Amazon's advertising business is decelerating slightly to 19% y/y growth, its slowest growth in the last two years. Last time this happened, they blamed inventory levels. No mention on the call.
What Is Happening with Amazon’s Low-Cost Store?
Low-Cost Store is still a hobby. It's unclear how they will surface this, and I wonder if it will be more of a distraction than anything. No Low-Cost Store mention on the call, except: "We've always said it's easier to offer lower-priced selection than to be able to afford to do so." You can say that again.
Can Amazon Solve Fresh Grocery?
Amazon may not be able to solve fresh grocery.
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