Investors were eagerly anticipating news of a “reacceleration” in Amazon’s cloud-computing business, but instead, they were introduced to a new term.
It is widely known that cloud-computing customers have been seeking ways to optimize their spending and make their workloads more efficient. So, how is this optimization trend impacting Amazon’s business? According to Chief Executive Andy Jassy, it is experiencing a “meaningful attenuation.”
During Amazon’s earnings call on Thursday, Jassy used the word “attenuate” and its derivatives six times, as reported by AlphaSense/Sentieo. Wall Street analysts took note of this recurring term, referring to Merriam-Webster’s definition, which describes it as a lessening.
RBC Capital Markets analyst Brad Erickson even provided his own interpretation of the term in a note to clients titled “Attenuate means ‘good for AWS’ (we looked it up).” Erickson observed that Amazon is witnessing a slowdown in the pace of optimizations and an increase in deal activity over the past few months, which he found encouraging. He rates the stock as outperform with a $180 target price.
MoffettNathanson’s Michael Morton also paid attention to the “attenuation” trend. He stated, “We learned two things from Amazon’s earnings. First, the definition of the word attenuate, and second, Amazon’s newfound outlook for the cost structure of the business.” Morton believes that this new outlook will lead investors to significantly increase their profitability estimates for FY24. He mentioned that Jassy only hinted at a potential reacceleration in the AWS business, falling short of investors’ expectations.
In conclusion, Amazon faces an “attenuation” trend in its cloud-computing business, as customers focus on optimizing their workloads. Despite this trend, analysts like Erickson and Morton remain positive about the company’s performance and foresee the potential for future growth.
Amazon’s Q3 Earnings Report: Record Operating Income and Profits
In a recent earnings call, Amazon CEO, Andy Jassy, announced that the company had signed several new deals in September, which will not be reflected in the Q3 GAAP reported numbers. Despite this, the total value of these deals surpasses the reported deal volume for the entire quarter. While this news may not have satisfied tactical investors, who still rely on third-party data to track AWS trends, experts remain optimistic about Amazon’s performance.
Amazon’s operating income for Q3 reached an impressive $11.2 billion, significantly higher than the $2.5 billion recorded in the previous year. This exceptional performance can be attributed to various factors, such as improved efficiency in the fulfillment network, enhancements in international margins, a shift in services mix, and the operating leverage gained by AWS.
Baird analyst, Colin Sebastian, praised Amazon’s Q3 operating margin for exceeding expectations and being substantially higher than consensus estimates. As a result, he maintained an outperform rating on Amazon shares and raised his share-price target to $160 from $155.
Bernstein analyst, Mark Shmulik, identified three key debates surrounding Amazon’s earnings report: the potential for AWS acceleration, the trajectory of operating income, and competition in the retail landscape. While Amazon did not fully address concerns regarding AWS growth, its impressive profits sent a clear message. Shmulik noted that Amazon’s operating income reached record levels and showcased six consecutive quarters of improvement in North America. As a result, he maintained an outperform rating on Amazon shares and set a target price of $175.
Overall, Amazon’s Q3 earnings report exceeded expectations in terms of operating income and profitability. While questions remain about AWS growth and potential pressures on the e-commerce business, the company’s financial success is undeniable.
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