The print included a headline beat, a 180bps acceleration in reported revenue growth, 120bps acceleration in gross profit growth and a 230point (point, not basis point) acceleration in EBIT growth. That’s +12.6% revs, +19.8% GP, and +343% EBIT.
AWS showed it troughed back in 2Q, slightly accelerating to +12.3% from +12.2% last Q. Management on the call talked about accelerated deal closings in the latter part of the Q, while cost efficiency actions by customers is moderating, and new AI products are likely to drive incremental growth. Punchline is that while everyone is worried about the cloud market post the GOOG print, it looks like Amazon is going to accelerate AWS growth into at least the high teens over a quarter or two. AWS is winning share with the best value proposition in terms of bang for your buck in cloud.
As we look at the model today, we think there is a good probability of acceleration in growth of online stores, Advertising, and AWS in 4Q. The latter 2 have very high margin flow through and could continue their growth rip into 1H 2024. Amazon is delivering some of the best EBIT growth in its history and so far is happening alongside an accelerating P&L. With big incremental cash flow, the company will potentially be looking at accelerated cash return to shareholders while still investing heavily in growth.
On the macro front, in addition to being bullish on AWS with lower cost optimization by cloud customers, management sounded similar to prior quarters on the consumer health noting “From a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can and seeking out deals, coupled with lower spending on discretionary items.” See Elevator Pitch and SIGMA analysis below.
