Amazon's Third-Quarter Results and Outlook Miss Expectations... Shares Plunge After Hours on AI Investment Costs

Amazon shares plunged in after-hours trading after the company reported third-quarter results and provided a sales outlook that fell short of market expectations. Its cloud business continued to grow rapidly, buoyed by demand for artificial intelligence (AI), but slower growth in e-commerce and advertising weighed on results. Investor concerns also mounted as massive AI infrastructure investments worsened cash flow.

Yonhap News Agency

Amazon said on October 29 (local time) that its revenue for the third quarter of this year rose 12% from a year earlier to $201.944 billion. That fell short of the $202.31 billion market forecast compiled by the London Stock Exchange Group (LSEG).

Earnings per share (EPS) also came in at $1.89, below Wall Street's estimate of $1.96. Net income was $10.685 billion, down 2.4% from $21.187 billion in the same period a year earlier.

Operating income, however, rose 61% from a year earlier to $28.076 billion, with the operating margin reaching a record 13.9%.

By business segment, Amazon Web Services (AWS), the company's cloud business, performed well. AWS revenue in the third quarter was $45.984 billion, up 39.3% from a year earlier. This was its highest growth rate in the past five years.

AWS operating income also rose 55% from a year earlier to $17.773 billion, accounting for 63% of Amazon's total operating income. The increase was driven by a surge in corporate demand for AI infrastructure and cloud services.

Amazon CEO Andy Jassy said, "Our investments in AWS are paying off," and forecast that the business would continue to grow rapidly in 2027 and 2028. AWS's annualized revenue run rate is approximately $184 billion.

However, Amazon's core e-commerce and advertising businesses fell short of expectations. Third-quarter advertising revenue was $19.64 billion, below the market estimate of $20.82 billion.

Amazon said that this year's Prime Day event being moved up from the third quarter last year to the second quarter this year affected its revenue growth rate.

Worsening cash flow resulting from massive AI investments also heightened market concerns. Free cash flow (FCF) for the 12 months through the end of the third quarter was negative $42.357 billion. The deficit had expanded more than fivefold from negative $7.604 billion at the end of the previous quarter. Amazon had recorded a surplus of $14.788 billion in the same period last year.

This was driven by a surge in capital expenditures to build infrastructure, including AI data centers and semiconductors. Amazon's net purchases of property and equipment over the past 12 months increased by approximately $94.8 billion from the same period a year earlier.

The company's fourth-quarter revenue outlook, which includes the year-end holiday shopping season, also fell short of market expectations. Amazon forecast fourth-quarter revenue of $240 billion to $247 billion. The midpoint of the outlook, $243.5 billion, is below the market estimate of $244.51 billion.

Amazon shares closed down 4.25% in regular trading that day. As of 6:35 p.m., they were down a further 6.54% in after-hours trading, at $227.86 per share.

This content was produced with the assistance of AI translation services.