Amazon outperformed analysts expectations in its third-quarter results on Thursday, with an operating margin of 7.8%. This was the biggest margin the company has seen since hitting 8.2% in early 2021. These improvements are a result of CEO Andy Jassy's aggressive cost-reduction measures, such as the termination of around 27,000 jobs. During the earnings call, the word "optimize" was used over twenty times.
Jeff Bezos famously told rival companies that "Your margin is my opportunity," which has been taken to heart by Andy Jassy, the current CEO of Amazon. His focus over the past year has been on trimming costs across the company, leading to the elimination of 27,000 jobs and adjustments to the fulfillment network for speed and efficiency. This has resulted in Amazon's operating margin for the third quarter of 2021 coming in at 7.8%, the highest it has been since the first quarter of 2021. Historically, their operating margin has been lower, even negative at times; however, the economic situation and pressures from Wall Street has caused tech companies to scale back.
Jassy's choice of words during the earnings call was pointed, with the term "optimize" used more than 20 times in reference to Amazon's own cost-cutting initiatives, as well as helping customers of AWS to lower cloud bills while still maintaining performance. Data indicates that while there is still a headwind associated with the cost optimization, the rate of new cost optimization is slowing down, and the demand for generative artificial intelligence is increasing. Revenue for AWS has grown 12%, which is a slower rate of growth than that of its competitors Microsoft Azure and Google Cloud.
After hours, Amazon's stock initially seesawed, but then experienced a 5% rise to $125.98 following CEO Andy Jassy's optimistic commentary during the call. Jassy and other Amazon executives disclosed that their efforts to reduce costs have paid off, resulting in more than a threefold increase of net income to $9.9 billion, or 94 cents a share, from $2.9 billion, or 28 cents a share, a year prior. These numbers exceeded analysts' prediction of 58 cents a share as reported by LSEG. Furthermore, sales figures surpassed market expectations, with a 13% improvement totaling $143.1 billion. Amazon's "regionalization" plan, which divides their shipping network into eight regions to facilitate faster yet cheaper deliveries, has also played a part in their cost-saving successes.
Advertising services and Amazon Web Services (AWS) yielded greater profits than core retail. Advertising services posted a 26% acceleration in revenue, surpassing $12 billion, due to the presence of third-party sellers and brands paying to have their goods appear higher in Amazon's search results on the web or in-app. The company's pact with the National Football League has also benefited the ad business, as Jassy noted a 25% spike in viewership of the Thursday Night Football game from the previous year.
CFO Brian Olsavsky relayed Amazon's prudent approach to headcount, along with the prudent cost controls they have applied to "non-people categories" such as infrastructure. Sales and marketing expenses declined from the preceding quarter as well.
Comments