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Amazon Profit Soars 55% in Q3, Driven by Cloud Growth

• ByStartupStory     |    November 1, 2024

Amazon has reported impressive third-quarter financial results, with profit surging by 55.2% year-over-year. The Seattle-based tech giant’s earnings were driven by robust growth in its cloud computing business, Amazon Web Services (AWS), which continues to be a critical revenue and profit engine for the company. Following the announcement, Amazon’s shares saw a 6% jump in after-hours trading.

For the quarter ending September 30, 2024, Amazon’s net income stood at $15.3 billion, a marked improvement from $9.9 billion during the same period last year. AWS played a pivotal role in this profit rise, contributing $10.4 billion in operating income, which represents nearly 60% of Amazon’s total operating income of $17.4 billion for the quarter. This reflects a 49.7% year-over-year increase in AWS’s operating income, underscoring the substantial impact of the cloud segment on Amazon’s overall financial performance. Amazon President and CEO Andy Jassy highlighted the cloud platform’s growing momentum during the earnings call, stating, “We have seen significant reacceleration of AWS growth for the last four quarters.” He noted that AWS has now reached a $110 billion annualized run rate.

Amazon’s Q3 net sales also rose 11% year-over-year, totaling $158.9 billion, while AWS revenue increased 19% year-over-year to reach $27.5 billion. Amazon holds a leading position in the cloud infrastructure market, where it competes closely with other major players like Microsoft and Google. According to Synergy Research Group data, Amazon led the market with a 32% share in Q2 2024, while Microsoft and Google followed with 23% and 12%, respectively. Earlier this week, both Alphabet and Microsoft reported impressive growth in their respective cloud businesses, largely driven by advancements in artificial intelligence. Google Cloud revenue grew by 35% year-over-year, totaling $11.3 billion in Q3 FY24, while Microsoft’s Azure and other cloud services posted a 33% year-over-year increase.

Tapping into AI: A Once-in-a-Lifetime Opportunity

Amazon, like its peers, is capitalizing on the immense potential of artificial intelligence. Jassy shared that “AWS’s AI business is a multibillion-dollar revenue run rate business that continues to grow at a triple-digit year-over-year percentage and is growing more than three times faster at this stage of its evolution as AWS itself grew, and we felt like AWS grew pretty quickly.” In line with its competitors, Amazon has ramped up capital expenditure to expand server and data center infrastructure in response to the rising demand for AI applications.

“We have more demand that we could fulfill if we had even more capacity today. I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply,” Jassy explained. “We are growing at a very rapid rate and have grown a pretty big business here in the AI space. And it’s early days, but I actually believe that the rate of growth has a chance to improve over time as we have bigger and bigger capacity.”

Chief Financial Officer Brian Olsavsky further shared Amazon’s capital expenditure plans, revealing that the company expects to invest approximately $75 billion in 2024, with AWS expected to receive the majority of funds next year. Jassy added, “Data centers, for instance, are useful assets for 20 to 30 years. And so, I think we have proven over time that we can drive enough operating income and free cash flow to make this very successful return on invested capital business. We expect the same thing will happen here with generative AI. It is a really unusually large, maybe once-in-a-lifetime type of opportunity.”

Retail, Advertising, and Other Businesses Contribute to Growth

Beyond cloud computing, Amazon’s core retail and advertising segments also reported positive growth. The company’s online store sales rose by 8% to $61.4 billion, while physical store sales saw a 5% year-over-year increase to reach $5.2 billion. Advertising, meanwhile, performed robustly, growing 19% year-over-year to $14.3 billion, surpassing the growth of Amazon’s primary retail operations. Subscription services posted an 11% year-over-year growth, reaching $11.3 billion.

Amazon provided an optimistic outlook for the upcoming holiday season. The company expects Q4 net sales to range between $181.5 billion and $188.5 billion, marking a 7% to 11% increase from the prior year. Additionally, operating income is forecasted to fall between $16.0 billion and $20.0 billion, compared to $13.2 billion in Q4 2023. “We are encouraged by the start of the holiday season, which kicked off in October with a strong Prime Big Deal Days,” Olsavsky noted.

 

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