27 October 2023
If you are covering Amazon’s latest financial results, please find below a comment from Ben Barringer, technology analyst at Quilter Cheviot:
“Amazon provided a reasonable way to finish of tech earnings week in the US with a decent and robust set of numbers. Revenues were up 11-12% across the board but perhaps more importantly, margins were much improved and as such profitability was strong. Amazon has managed to achieve this in two ways. Firstly in the retails business it has optimised its footprint in the US to make its operations more efficient, while in Amazon Web Services, it is getting more customers using more of their products, especially in chips and processing. That profitability piece is also extending right across the company and international division saw flat margins, and could be on track to consistently make a profit.
“Amazon is also seeing strong traction in its advertising business, with that side up 25%. It has consequently decided to follow the likes of Netflix and Disney in bringing adverts into its streaming service and adding in an additional premium tier ($2.99pm) to remove them. Netflix has shown this model works so this could be a real boon for Amazon given all of it can be done in house.
“Finally, there is artificial intelligence, where many felt Amazon were lagging behind the likes of Microsoft. Ultimately, Amazon has plenty of capability and products for AI, they just need to increase awareness of it. Adding generative AI to Alexa to make its more conversational will be a prominent improvement and should help with this.
“All in all, Amazon remains a market leader in e-commerce and cloud compute and despite the challenging backdrop margins are improving nicely. Guidance is perhaps a little conservative compared to what the market expects and wants, but there aren’t many businesses out there that can weather an economic storm quite like Amazon can.”
