Amazon Q3 results surge with $96.1 billion in revenue; AWS operating income $3.53 billion

Amazon crushed estimates on strong e-commerce revenue gains. As usual, AWS brought in the most operating income.

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Amazon's third quarter revenue grew 37% and checked in at $96.1 billion with Amazon Web Services sales at $11.6 billion.

AWS delivered third quarter operating income of $3.53 billion compared to Amazon's North America sales of $2.25 billion. Overall, Amazon reported net income of $6.3 billion, or $12.37 a share.

Wall Street was expecting Amazon to report third quarter sales of $56.4 billion with non-GAAP earnings of $7.41 a share.

Not surprisingly, Amazon raised its 2020 outlook. Amazon projected fourth quarter sales of $112 billion and $121 billion with operating income between $1 billion and $4.5 billion. Wall Street was only expecting fourth quarter sales of $70 billion.

In afterhours trading, Amazon shares waffled due to AWS sales growth of 29% from a year ago. That growth trailed Microsoft Azure's 48%, but AWS has a much larger base of revenue. 

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CFO Brian Olsavsky said: 

Our Q3 results largely reflect the continuation of demand trends we saw when we exited the second quarter, with strong demand and sales growth across our major product categories globally, including hardlines, consumables, softlines and media. We also continue to see strong Prime member engagement. Prime members continue to shop with greater frequency and across more categories than before the pandemic began. They continue to expand their usage of Prime's digital benefits, including Prime video. Internationally, the number of Prime members who stream Prime video grew by more than 80% year-over-year in the third quarter, and international customers more than doubled the hours of content they watched on Prime Video compared to last year. We're also reaching more customers with our grocery offerings. In Q3, our year-over-year growth rate of online grocery sales continued to accelerate, and we've continued to offer more convenient options for customers, including grocery pickup, which is now available from all Whole Foods market stores. And just as we saw in Q2, Prime member renewal rates improved in Q3 year-over-year. 

Olsavsky also said the following:

  • In the first three quarters of 2020, Amazon has spent $7.5 billion in incremental COVID-19 related costs.
  • The fourth quarter will bring another $4 billion in COVID-19 costs.
  • Some of the company's fulfillment network expansion slipped into the fourth quarter and will be a headwind while they ramp up. 
  • Amazon has invested nearly $30 billion in capital expenses and finance leases through the first nine months of 2020. 
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Going into Amazon's earnings report, analysts were concerned about whether the company's sales growth was sustainable. Jefferies was expecting net sales growth of 32% in the third quarter. Prime Day will fall in the fourth quarter results.

Capacity will be a big issue, said Jefferies analyst Brent Thill. "The key for Amazon this holiday season will be whether these capacity expansions will be enough to handle an expected surge in demand/orders," said Thill.

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