Amazon: Not Just an Online Store

Following up on its earnings beat since the beginning of the year, Amazon reported better-than-expected results for the third quarter as well. The e-commerce giant that had struggled to live up to expectations in 2022 reported a net profit of $9.9 billion on net sales of $143.1 billion for the three months ended September 30.

“We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward", Andy Jassy, the company's CEO said. "Our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly.” Amazon also said it was on track to achieve the fastest speeds of delivery ever to U.S. Prime customers.

An important message included was the fact that the slowdown in AWS growth, which had spooked investors six months ago, continued to subside. After all, Amazon's cloud arm has been the company's main profit driver for years. "The AWS team continues to innovate and deliver at a rapid clip, particularly in generative AI," Jassy said, adding that several major U.S. companies had started running generative AI workloads on AWS.

As the following chart shows, AWS is Amazon’s third biggest operating segment in terms of sales, but because it’s by far the most profitable part of the company’s vast operations, investors tend to look at its performance particularly closely. The chart also illustrates that the world’s most popular online retailer has expanded its business considerably over the past few years. While its core “online stores” business, i.e. first-party e-commerce sales recognized on a gross revenue basis, accounted for 64 percent of sales in Q1 2017, it amounted to just 40 percent of total sales despite some recent growth in Q3 of 2023.