Instant Reaction: Amazon Jumps After Sales, Profit Tops Estimates

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2:03With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan, pure opportunity. Seize your opportunity at michiganbusiness.org. Bloomberg Audio Studios, podcasts, radio, news. This is a breaking news update from Bloomberg. instant reaction and analysis from our 3 000 journalists and analysts around the world it is bloomberg business week daily that's carol masser i'm tim stenevek i'm watching shares of amazon in the after hours up eight and a half percent right now the company reported net sales for the third quarter that beat the average analyst estimates we're talking about 180.17 billion dollars that's up 13 percent year over year the estimate was for 177.82 billion dollars aws coming in net sales excluding fx up 20 versus 19 year over year estimates for 17.9 as far as that forecast looks sees net sales of 206 billion to 213 billion the estimates for 208 billion dollars so kind of on the high like yeah some higher performance yeah operating income uh for the fourth quarter the company sees that at 21 billion dollars to 26 billion dollars the estimate for 23.78 billion.

3:23We're going to get some analysis of on Amazon, but just want to mention Netflix soaring all of a sudden of 3.2 % here in the aftermarket. This is the company announces a 10 for one stock split. Keep in mind this stock, one share costs$1 ,089. So we're talking about now it's going to be much more accessible to investors, right? It's going to go now. I don't, I don't think so. At a hundred dollars a share? No, you can buy shares. You can buy pieces of stock. You don't believe that. I don't. I think back in the day, yeah, back in the day, it made a big difference. But now that all these retail brokerages offer, you want to take this outside?

3:56No, I mean, everyone, whenever I say these people get in touch with me online and they talk about options and like how important it is for that. But yeah, it's, it's, it's always weird when you see something that's not fundamental, actually moving the stock price. All right. Good stuff. All right. Anyway, but it is, but it is moving it. Hey, let's get to back to Amazon. Cause that stock is soaring in the aftermarket. Putnam Goyal is Bloomberg intelligence, senior analyst for e-commerce and athleisure. She joins us from the Bloomberg Intelligence Princeton Bureau. Let's go to you. God, Poonam, this looks like a really strong report on a lot of metrics.

4:29It definitely is. I mean, they hit it out of the park. Sales were very good across the board, across all business segments, AWS, online advertising, even physical stores. So from a top line perspective, very, very encouraging results. In fact, AWS was probably the bright spot here. 20 % gains. We haven't seen that in a while. On the margin side, I think AWS did really well. But then when it came to North America margins, they were weaker than we expected. So it's the only one area that I saw some skepticism. And I think that's largely due to their ability to want to maintain low prices to make sure the consumer keeps coming back and investing in its fulfillment.

5:09So you think that margins took a hit because Amazon is keeping prices low. Why? I mean, they want to drive market share gains, right? So if you think about what's happening in retail this year, tariffs have clearly added to costs and many retailers have decided to offset those costs through efficiencies to try to keep and hold prices steady or raise them selectively. So that could be part of the pressure. And then also, you know, Amazon has stepped up its game on shipping where it was the leader and it still is the leader, but they're continuing to invest there to get items to you faster, same day, etc.

5:47Yeah, they still do it, right? They're definitely completing on that one. Hey, Ed Ludlow, come on into our conversation, co-host of Bloomberg of BTEC on Bloomberg Television, watching these numbers. I mean, investors are sending shares of Amazon much higher here in the aftermarket, stock up about 9%. The cloud computing division accounts for the majority of operating income, right? And this return to growth year on year of above 20 % for the first time since 2022, it's absolutely timely. You know, I think Google gave us a lot of evidence that GCP, their cloud offering, has a lot of momentum at the moment.

6:24But this is a bit of a barnstormer from Amazon to say, actually, on every metric that we track, AWS is doing really well. One of the headlines that you spotted really excellent the appreciation in their investment on Anthropic that had a non-operating income impact at the bottom line, right? But also they're talking a pretty fierce game about their custom training chip, Tranium 2, and calling it a multi-billion dollar business. And what we've seen in the past is when Amazon hasn't necessarily put a specific dollar figure on something, but said this AI thing is in the billions of dollars, the market has given them a lot of credit for giving us at least like a little bit more detail.

7:08Ed, where does the Trinium 2 model fit in? Well, this is why I bring Google up. You know, when we broke the story that Anthropic had done a deal with Google for the use of 1 million TPUs, Google's custom AI card or accelerator, it was a bit of a black eye for Amazon because Amazon is also a major investor in Anthropic and Amazon and Anthropic have this large project called Project Rainier, a data center in Indiana. What they're saying is that this is a multi-billion dollar run rate business, offering their in-house chip to third-party customers. We don't know any more than that, but it does indicate that both for Anthropic and for other customers outside of Anthropic, that it's a viable business.

7:55They've invested a lot of money on custom silicon, and at least on the one headline we have on that, it's paying dividends, so to speak. Hey, speaking of dividends and paying dividends, and Poonam, I want to go back to you on the retail side of this. I mean, we know that Andy Jassy, the CEO of Amazon, has really been working on improving profitability of that business, automation. We've had their key head of robotics on. Ty Brady. Talking about what Amazon continues to do at that company in terms of automation and robotics. so what else can you give us in terms of color on the retail side of the business which is something that so many of us right identify very clearly with when it comes to amazon yeah i think look they're making all the right investments to improve profitability in the longer term amazon's retail businesses finally break even to profitable it took a long time to get here and i think automation will be the next leg of growth to drive that further but as i mentioned earlier, AWS is driving their EBIT margins.

8:57So AWS can compensate these investments to a certain extent. And so can advertising because the margins here are just so much higher than they'll ever be able to get in the retail business. How is the advertising business doing, Poonam? It's doing really well. It grew 22 % in constant currency in the quarter. So right where we expected. And I think that's a high profit business. It's about 75 % to 80 % profit margin by our estimates. And that's flowing right to the bottom line. We see it going to$100 billion. So there's a lot of improvement that they can build in advertising and really drive that business higher from here.

9:34Where is that coming from? Is that coming from interstitials placed in Amazon Prime Video, which I think, you know, caught a lot of people off guard when they started doing that. Was it last year, maybe? Or is it coming from like products that are paid for placement? I think it's a combination of both. You're absolutely right. These ads are driving incremental revenue. But if you think about the base of this revenue base, it's still coming from product advertisements. The ads do help and they will become a larger driver as the ad business grows in size. But the core of it is still product advertisement.

10:09Hey, Puddin, before we let you go, what's kind of top of mind for you and the areas that you cover with Amazon that you would be asking on the earnings call? On the retail side, it's really about holiday and how that's going, their October Prime Day deals that they had, how that's going, and how the customer is responding. We think the customer is still holding up well. Are they seeing the same thing? And how do they see holiday shaping out to be wherever we're entering holiday? All right. Love it, love it. Looking out for Poonam's research, too, that will hit the Bloomberg. Poonam Goyal is Bloomberg Intelligence Senior Analyst for e-commerce and athleisure.

10:42We want to go back to the co-host at BTEC on Bloomberg TV every day, 11 a.m. to noon on Bloomberg Television. Ed Ludlow still with us. Ed, as you continue to pour over that release, what else is catching your attention? Yeah, I mean, Poonam gave us the story with Amazon.com, right? Most of the audience are going to be more familiar with the e-commerce business than they are with the cloud computing business. They are number one in cloud computing. And as Poonam put it so succinctly, the profit is compensated for the less profitable e-commerce side through cloud. But Andy Jassy is really focused on retail being more profitable.

11:21Tim is absolutely right that you look at advertising and the role that that's played there, and it has been improved. I would also just note that in the quarter, Amazon's numbers reflect almost$2 billion in severance costs. That's the other story of Amazon right now getting rid of the bloat. That was the previous quarter, right? Not the The current quarter? Previous quarter. Exactly. So the current quarter is going to take a hit right now or is it going to be the upcoming quarter? It's always tough with this stuff because we don't know how these employment agreements work. Yeah, but the third quarter operating income was$21.7 billion, almost$22 billion without charges when you strip the charges out.

12:02And so, you know, this is a profitable business overall because of cloud. It's a funny thing to say, but what's a couple of billion, you know, to right size the company? And that is the thing here. Amazon has been inconsistent on this point. At one time, Andy Jassy said that right sizing the company and eliminating roles was because of the advent of AI. But the communication this past week when they cut 14 ,000 corporate roles was it was more about bloat and middle management, right sizing areas and simplifying the management structure more than anything. So it's hard to know which of those two stories is the prevailing one here.

12:42But yeah, for Amazon, it's a one-time charge that so what? All right. We want to bring into the conversation to Eric Clark, Chief Investment Officer at AccuVest, Global Advisors and Portfolio Manager for the Alpha Brands logo ETF, which has Amazon and Apple and Alphabet and Microsoft and Netflix in its holdings. Ed Leather is going to stay with us. He's, of course, co-host of BTEC on BTV. Eric, come on in on Amazon. You like this? I love it. I mean, I think the market loves it, too. How are you guys? I think the setup into the quarter was pretty attractive because people were nervous about AWS and losing market share.

13:24So the stock sold off into the print, and then you get some reality that Amazon is still doing Amazon. Well, how do you read into this report in the context of the layoffs that we learned about earlier this week. Did Amazon need to do those layoffs? Do you see it as a directional shift for the company? Obviously, they were doing pretty well with this same headcount. I mean, you're going to hear more and more of this. And I don't love that as a consumer investor. But the reality is when you're implementing AI through your business and you're obviously serving other companies doing the same thing, right sizing of your headcount is a big part of the story.

14:00And so with Robux in warehouses, plus all the typical right sizing, it's a very large company, a very large employer. So I think we're going to have to hear about that across most companies, certainly deploying AI because they're getting a lot of efficiencies and might not need the same kind of people. Hey, Ed, I know you're doing double duty for us and for our TV team, but I'm just thinking about all these names, these hyperscalers, these big tech that have been reporting as aniragrana said they're not apples to apples even though we sometimes you know we're getting apple in seven minutes we pull them together and ed's going to be back too to talk apple with us but how are you thinking against kind of the big cap tech names really smart question yeah how this fits well so what they all have in common is capital expenditures so okay on the one hand they will have capital expenditures it's what they then are able to say on the other that they've been inconsistent meta didn't say anything about growth related to ai and the stock fell precipitously.

15:00I go back to the Tranium 2 headline from AWS, it being a multi-billion dollar business, their commitment to invest in infrastructure, but also giving us a number for what's come online. The kind of fighting talk from Andy Jassy on the AWS growth and its ties to AI specifically, investors seem to be rewarding any more little bits of information that you can get that shows something coming out of the investment that's happened in prior quarters. And so while they all have capex in common, the story they have to tell about literal top line growth as it relates to AI has been very different. And Amazon has something to say here, clearly.

15:37All right, Ed, we know you're going to probably head over to the TV side, but you're going to come back with us a little bit later on when Apple reports in just a few minutes. Our Ed Ludlow, of course, co-host of BTEC on BTV.

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