Shoppers cautious as Amazon's cloud stabilizes ahead of holiday season

Amazon.com announced on Thursday that its cloud division's growth is steadying, as evidenced by new deals. However, the company also signalled caution about shopper spending as the holiday season approaches. Despite forecasting a rise in revenue for the crucial holiday period, Amazon's predictions may fall short of Wall Street's expectations. The prediction came as the company posted strong results for the third quarter, boosted by a recent marketing campaign and quicker delivery times. Following the release of these results, the company’s stocks experienced significant fluctuation, eventually rising by 5% in after-hours trading.

Despite facing numerous obstacles, Amazon is committed to maintaining its status as the world's premier cloud provider and online retailer. To this end, the company has focused on fortifying its cloud business. It recently entered into a deal to invest up to $4 billion in chatbot-maker Anthropic and introduced an AI service that attracted thousands of users. Amazon also revamped its delivery network to store goods closer to customers, which has sped up order fulfilment and reduced costs.

Despite these efforts, the company also has had to navigate an array of challenges, such as constrained household budgets, businesses closely tracking their cloud spending, and a legal challenge initiated by the U.S. Federal Trade Commission in September. The lawsuit accuses Amazon of inflating prices and exercising monopoly power, allegations which the company refutes.

Considering these factors, Amazon forecasted revenue between $160 billion and $167 billion for the fourth quarter, which ends on December 31. This forecast slightly undervalues the LSEG's prediction of $166.62 billion in sales, which is at the top end of Amazon's guidance. Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, commented that Amazon's increased seasonal hiring could signal increased discretionary spending, but this may not be sustained into the new year. Thus, Amazon's financial outlook requires close monitoring.

The company's fortunes are closely linked to its cloud-computing division, Amazon Web Services (AWS), a significant source of profit for the firm. However, AWS' growth cooled off earlier in the year. Amazon's CFO, Brian Olsavsky, noted that initiatives assisting customers in closely monitoring their cloud spending are starting to slow down. Meanwhile, CEO Andy Jassy reported that AWS was increasing the pace of signing and closing deals, including large-scale expansions with current clients and new agreements. Interest in AWS has been sustained thanks in large part to the firm's AI capabilities.

For the third quarter, AWS reported revenue of $23.1 billion, slightly above analyst expectations of $23.09 billion. Amazon's total revenue for the same period increased by 13% to $143.1 billion, outstripping Wall Street estimates of $141.41 billion based on LSEG data. Amazon's net income rose to $9.9 billion in the third quarter, compared to $2.87 billion a year earlier. Olsavsky noted that the company saw strong demand for beauty and health products, although discretionary spending dipped somewhat.

The company managed to negotiate the mixed economic landscape through various initiatives. An annual sales event known as Prime Day saw record-breaking sales, and a following promotion marked the company's largest October holiday start to date. Amazon's North America segment saw an 11% increase in third-quarter sales to nearly $88 billion, resulting in a $4.3 billion operating profit compared to an operating loss a year earlier.

After an aggressive drive to cut costs, which included planning for 27,000 layoffs (approx. 9% of its 300,000-strong workforce), Amazon has continued streamlining its operations, including Reducing roles at its Amazon Fresh stores. Additionally, the company's same-day delivery services boosted profit margins by incentivizing customers to place larger and more frequent orders. The retailer has heavily invested in expanding this service in recent.