Despite its cloud unit falling short of investor hopes, Amazon.com Inc. delivered third-quarter earnings and revenue that easily surpassed Wall Street’s, sending its stock higher in extended trading.

The company reported earnings before certain costs such as stock compensation of 94 cents per share, blowing past the analysts’ forecast of 58 cents per share. Revenue for the quarter jumped 13% from a year earlier, to $143.1 billion, ahead of the $141.4 billion forecast. The increased revenue suggests Amazon is finally seeing some business acceleration again after a difficult year marred by soaring inflation, rising interest rates and stagnant sales.

Amazon’s net income more than tripled to $9.9 billion in the quarter from just $2.9 billion a year earlier. The number includes a pretax valuation gain of about $1.2 billion from its investment in the electric car maker Rivian Automotive Inc.

Investors were particularly interested in the numbers from two of Amazon’s most important businesses. Amazon Web Services Inc., the company’s cloud computing arm, fell just short of expectations with revenue of $23.1 billion, below the $23.2 billion forecast. However, its advertising unit showed strength as it delivered revenue of $12.1 billion, well ahead of the $11.6 billion analyst target.

For the all-important fourth quarter that includes holiday period sales, Amazon executives said they’re looking at revenue in a range of $160 billion to $167 billion, the midpoint of which is below Wall Street’s forecast of $166.6 billion. The guidance suggests revenue growth of 9.6% from a year earlier.

The company has endured a turbulent time in 2023 as it looked to streamline its businesses after expanding rapidly during the COVID-19 pandemic. Since last fall, it has axed more than 27,000 workers and closed some of its less profitable businesses.

In a statement, Amazon Chief Executive Andy Jassy (pictured) indicated that those cost-cutting efforts appear to have had the desired impact. “We had a strong third quarter as our cost to serve and speed of delivery in our stores business took another step forward, our AWS growth continued to stabilize, our advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” he said.

Amazon’s report came in the wake of better-than-expected results from rival tech giants Alphabet Inc. and Meta Platforms Inc. However, neither company was able to prevent their shares from falling after-hours either. In the case of Alphabet, investors appeared to express reservations about disappointing revenue growth within the Google Cloud unit. Meanwhile, Meta’s sell-off was sparked by the company’s word of warning regarding the ad market in light of the conflict in the Middle East.

In the last two days, Amazon’s stock declined by around 6%, likely in response to those events. However, despite AWS missing its targets, Amazon’s stock rose by 5% in the after-hours trading session.

Investors may still be worried, however, that AWS is losing market share to rivals such as Microsoft Azure and Google Cloud. The business has seen its growth slow in recent quarters as enterprises attempt to reel in spending on information technology. In a conference call, Amazon Chief Financial Officer Brian Olsavsky said customers are still engaged in “cost optimization,” although he said it’s slower than before. However, while AWS’ revenue increased by just 12% during the quarter, Microsoft said Azure grew by 29% and Google Cloud grew by 22%.

Jassy appeared to be upbeat about AWS’ prospects, though, saying that the “pace and volume of closed deals” is now picking up, with a number of major deals signed in September that will show up in its fourth-quarter results.

Jim Hare of Gartner Inc. said it’s possible, though somewhat unlikely, that AWS is losing market share to rivals like Microsoft because of the enterprise focus on generative AI. He said Gartner sees customers optimizing their existing production workloads across all three major cloud providers in order to free up IT spend to invest in AI.

“Microsoft stated that about three percentage points of the quarter’s Azure growth was tied to AI,” Hare explained. “So, some of the savings from optimizing workloads on AWS may have indeed been spent on AI projects on the Azure side.”

However, Hare said it’s also likely that organizations will want to invest in AI projects on AWS now that most of its generative AI services have been made generally available. “AWS benefits from a large amount of enterprise data being stored on its cloud, which is the fuel for AI models,” the analyst pointed out. “I expect enterprises to take a multicloud approach to AI. Many will likely use Microsoft for its AI-enabled productivity tools and look at AWS and Google Cloud for building custom applications enabled with AI.”

Regarding the revenue growth percentages, Hare said these need to be considered in context of where the companies currently are. “Google Cloud’s 22% growth is built on a much smaller revenue number than AWS,” he said. “And although Microsoft announced Azure’s revenue jumped 29% during the quarter, it doesn’t break out any numbers in dollars, so it’s harder to do an apples-to-apples comparison.”

Holger Mueller of Constellation Research Inc. said that in addition to the slowing rate of growth, AWS’s costs were higher in the quarter, which meant a lower contribution to Amazon’s overall profit in the quarter.

“AWS delivered almost twice as much operating income as the retail business did, and that is a key milestone,” Mueller added. “However, AWS is growing more slowly than its competitors, and that is not a good position to be in with this business.”

The picture in Amazon’s digital advertising business was brighter, with customers boosting their ad spending to improve visibility in the company’s online marketplace. The company said ad revenue grew by 26% from a year ago, faster than Facebook’s 23% ad growth and the 9% growth reported by Google LLC.

Moreover, sales in Amazon’s main e-commerce business grew by 7% from a year earlier, improving from the 4% growth reported in the previous quarter. The third-quarter results included sales from Amazon’s annual Prime Day event, which occurred in July and was described by Amazon as its “biggest ever.”

Olsavsky said the e-commerce businesses benefited from measures the company has implemented to reduce costs tied to delivery, fulfillment and inventory handling.

The cost-cutting measures have had a direct impact on the company’s bottom line, with its operating margin rising to 7.8%, the highest in more than two years.

Photo: SiliconANGLE