Amazon Q3 Earnings Live Blog

Eric Jhonsa

Amazon posted healthy Q3 numbers on Thursday after the close, buoyed by soaring e-commerce activity amidst the Covid-19 pandemic.

The e-commerce giant earned GAAP EPS of $12.37 compared to a $7.41 consensus, while revenue of $96.15 billion beat a $92.78 billion consensus.

Shares are down 0.9% to $3,182 after-hours. 

TheStreet and RealMoney's tech columnist, Eric Jhonsa, is analyzing the company's earnings report, as well as the call with analysts that's scheduled to begin at 5:30 p.m. ET.

Comments (51)
No. 1-50
Eric Jhonsa
Eric Jhonsa

Editor

Amazon's call has ended.

After going into its Q3 report up 74% on the year, Amazon is down 1.8% after-hours to $3,153 in spite of posting a strong Q3 beat and issuing Q4 revenue guidance of $112B-$121B, which was mostly above a $112.7B consensus. Operating income guidance of $1B-$4.5B was below a $5.8B consensus, with Amazon forecasting ~$4B worth of Q4 COVID-related expenses.

Seller services revenue (+55% Y/Y) was a strong point in Q3, as was "Other" revenue, which is dominated by ad sales and grew 51%. AWS revenue rose 29% and direct e-commerce (online stores) revenue grew 38%.

Amazon also once more reported very high spending and hiring growth. Shipping costs rose 57% Y/Y, headcount rose 50% to 1.125M and direct purchases of property and equipment rose 136% to $11.1B.

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how Amazon plans to evolve its ad efforts. Also one about video efforts.

Fildes: We're investing in improving various ad products. Sponsored product ads, sponsored brand ads, etc. Also investing in making it easier to advertise on Amazon, to improve measurement, develop new ad products. We're seeing good momentum for video ads as we offer inventory on services such as IMDb TV.

Olsavsky: We're investing in both U.S. and foreign original content. It's helping drive higher Prime Video viewing, which in turn helps drive higher Prime sign-ups and renewals, which then drives more shopping on Amazon. We think overseas customers appreciate our efforts to create compelling local content for them.

Eric Jhonsa
Eric Jhonsa

Editor

Question about COVID-related expenses. Are they structural or one-time? Also one about the International segment reporting a profit again, and one about strong "Other" (ad) revenue growth.

Olsavsky reiterates that the COVID expenses cover both productivity hits and direct expenses related to things such as cleaning. Says the costs hopefully won't be recurring once the pandemic ends. Also notes COVID has temporarily lowered some expenses, such as marketing and travel, and that higher sales volumes have boosted operating leverage.

Regarding International, he says Amazon is seeing very strong volume growth in places such as Europe, Japan and India, and that's allowing the segment to be profitable for now. Says Amazon is still investing heavily in various international efforts.

Regarding Other revenue growth, he notes the ad business had a very strong Q3, thanks to traffic growth and higher ad budgets.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We'll all be stretched as we cope with high holiday season demand. Will rely heavily on both Amazon's internal assets and third-party delivery partners.

Also indicates transportation capex will be growing over a multi-year period.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how much of the incremental e-commerce and AWS growth Amazon has recently seen is temporary rather than structural.

Olsavsky: It's hard to predict. There was a spike earlier this year in sales of groceries, masks, wipes, etc. But we're still seeing strong Prime member engagement, people are buying more frequently and using our content services more. Some demand will eventually go back to physical stores, but the trends are good. Cloud is a mixed bag right now. Many customers are moving to the cloud at a rapid pace, while customers in travel, hospitality, etc. are facing pressures. The cloud is a good way to save money right now. Our backlog of multi-year cloud deals has gone up a lot. But different industries are going through different dynamics right now.

Fildes adds that Amazon is seeing good AWS demand in certain verticals, such as government. Also notes the company is seeing strong uptake for AWS cloud computing instances powered by its Arm-based Graviton2 CPU.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Amazon's op. income guidance. Are other factors at play besides COVID and fulfillment spend? Also one about 2021 capex plans.

Olsavsky: There's typically uncertainty related to Q4. COVID adds to it. We're still seeing strong demand trends. Heavy capex and hiring are both expense headwinds. We've significantly expanded our capacity in terms of both buildings and people, and are carrying it through the year.

Regarding 2021 capex, he says there was some pull-forward for capex this year. But adds Amazon is erring on the side of having too much capacity rather than too little, and will invest to make sure it can effectively meet demand.

Eric Jhonsa
Eric Jhonsa

Editor

A question about fulfillment expense leverage and its durability.

Olsavsky: Fulfillment costs are boosted by both COVID expenses and per-unit expenses, but are offset by strong operating leverage. Higher volumes yield better leverage for fixed-cost assets for fulfillment and to an extent transportation assets.

Eric Jhonsa
Eric Jhonsa

Editor

The Q&A session is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky reiterates that Amazon expects to grow its fulfillment/logistics square footage by ~50% this year, with about half the growth on the transportation side.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We've already added another 100K jobs so far in Q4.

Eric Jhonsa
Eric Jhonsa

Editor

Notes Amazon saw strong AWS and advertising op. income growth. Says some of Amazon's planned fulfillment spend was pushed out from Q3 to Q4, and that this is reflected in Amazon's Q4 op. income guidance.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: The largest portion of our COVID costs involves productivity headwinds due to safety measures and the opening of new facilities.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: Amazon saw particularly strong growth in FBA (fulfillment service) usage. More than 500K sellers are seeing record sales on their stores this year.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's online grocery sales growth rate continued to accelerate in Q3, and the Prime renewal rate improved.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky: We continue seeing strong demand and Prime member engagement. Internationally, the number of Prime members streaming video rose 80% Y/Y.

Eric Jhonsa
Eric Jhonsa

Editor

Olsavsky starts with some PR work, thanking Amazon employees, delivery partners, marketplace sellers, etc.

Eric Jhonsa
Eric Jhonsa

Editor

CFO Brian Olsavsky now talking.

Eric Jhonsa
Eric Jhonsa

Editor

IR chief Dave Fildes is going over Amazon's safe-harbor statement.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's call is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's stock is down 1% after hours right now. It went into the Q3 report up 74% on the year.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's call is usually hosted by CFO Brian Olsavsky and IR chief Dave Fildes. Prepared remarks (if provided) tend to be relatively brief, with much of the call's runtime involving the Q&A session with analysts.

Eric Jhonsa
Eric Jhonsa

Editor

Here's the webcast link:

Eric Jhonsa
Eric Jhonsa

Editor

Hi, I'm back to cover Amazon's earnings call, which should start in a few minutes.

Eric Jhonsa
Eric Jhonsa

Editor

I'm taking a short break, but will be back to cover Amazon's earnings call, which starts at 5:30 P.M. ET.

Shares are currently down 1.3% after-hours to $3,170, after Amazon comfortably beat Q3 estimates, issued Q4 revenue guidance that was mostly above consensus and issued below-consensus Q4 operating income guidance while forecasting $4B worth of quarterly COVID-related expenses.

Eric Jhonsa
Eric Jhonsa

Editor

Amid higher regulatory scrutiny, Amazon dedicated a lot of space in its earnings release to its recent hiring activity.

Among other things, the company noted it's creating 100K new permanent jobs and 100K seasonal jobs in North America, as well as more than 100K seasonal jobs in India and 10K jobs apiece in the U.K and in Bellevue, WA.

Eric Jhonsa
Eric Jhonsa

Editor

The unearned revenue balance, much of which involves payments from Prime fees and AWS services that Amazon hasn't recognized revenue for yet, stood at $9.25B at quarter's end, up from $7.38B a year earlier.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon ended Q3 with $68.4B in cash/marketable securities and $32.9B in long-term debt.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon is clearly treating the current environment as an opportunity to invest heavily not just to help address near-term demand, but to strengthen the long-term moats provided by Amazon Prime and its warehouse/logistics infrastructure.

Eric Jhonsa
Eric Jhonsa

Editor

Notably, Amazon's direct purchases of property and equipment (driven by warehouse/logistics capex) rose 136% Y/Y to $11.06B, as the company invested heavily in expanding its warehouse and delivery footprint.

Spending on property and equipment via finance leases (driven by AWS capex) fell 1% to $3.57B

Eric Jhonsa
Eric Jhonsa

Editor

Q3 operating expense growth:

Fulfillment +45% Y/Y to $14.71B
Tech/content +19% to $10.98B
Marketing +14% to $5.43B
G&A (impacted by higher stock comp expenses) +24% to $1.67B

Eric Jhonsa
Eric Jhonsa

Editor

As is the case for many other tech companies, forex has gone from being a headwind to a slight tailwind for Amazon, thanks to the dollar's decline against the euro and other currencies.

Q3 sales received a $691M (0.8-point) favorable impact from forex, and Q4 guidance assumes a 0.9-point forex boost for revenue growth.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's Q3 GAAP gross margin was 40.6%, slightly above a 40.4% consensus and slightly below a year-ago GM of 41%.

Strong seller services/ad revenue growth was a tailwind for GM, while high shipping expense and hiring growth was a headwind.

Eric Jhonsa
Eric Jhonsa

Editor

On a trailing 12-month basis, Amazon's free cash flow minus lease and financing payments stood at $17.9B at the end of Q3 vs. $19.4B at the end of Q2 and $10.5B at the end of Q3 2019.

Eric Jhonsa
Eric Jhonsa

Editor

It's also worth noting that the push-out of Prime Day to Q4 acted as a headwind for Q3 growth rates, and will be a tailwind for Q4 growth rates.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's recent growth rates for various revenue sources, as well as paid units and headcount. As these numbers show, both direct and marketplace e-commerce activity continued inflecting higher in Q3.

Eric Jhonsa
Eric Jhonsa

Editor

Amazon now employs more than 1M people: Headcount (covers both full-time and part-time employees) rose 28% Q/Q and 50% Y/Y to 1,125,300.

Eric Jhonsa
Eric Jhonsa

Editor

Paid unit growth came in at 46% Y/Y, down from Q2's 57% but still well above the year-ago period's 22%.

That growth, along with COVID expenses and Amazon's large last-mile delivery investments, contributed to a 57% increase in shipping costs to $15.06B.

Eric Jhonsa
Eric Jhonsa

Editor

Following a Q2 in which online stores growth nearly matched seller services growth and outpaced "Other" revenue growth, Amazon's e-commerce revenue saw a pronounced mix shift towards seller services and ads in Q3.

Since seller services/ads are higher-margin businesses than direct e-commerce, this mix shift provided a boost to EPS.

Eric Jhonsa
Eric Jhonsa

Editor

Revenue by type:

Online stores (direct e-commerce) +38% Y/Y to $48.35B, beating a $47.12B consensus
Third-party seller services (commissions, fulfillment services, etc.) +55% to $20.44B, beating an $18.61B consensus.
Subscription services (Prime fees, content services, etc.) +33% to $6.57B, beating a $6.28B consensus
"Other" revenue (dominated by ads) + 51% to $5.4B, beating a $4.9B consensus
Physical stores (dominated by Whole Foods) -10% to $3.79B, missing a $3.95B consensus

Eric Jhonsa
Eric Jhonsa

Editor

Amazon's stock is now down 1% after hours. The Q3 report looks pretty good, but (as has been the case for e-commerce peers reporting this month) pre-earnings expectations were high.

Eric Jhonsa
Eric Jhonsa

Editor

Segment performance:

North America revenue +39% Y/Y to $59.37B, above a $56.76B consensus
International revenue +37% to $25.17B (+33% in constant currency), above a $23.9B consensus
AWS revenue +29% to $11.6B, roughly in-line with consensus

Eric Jhonsa
Eric Jhonsa

Editor

Revenue rose 37% Y/Y in Q3 (compares with 40% growth in Q2 and 26% growth in Q1). Q4 guidance, which might be conservative given Amazon's recent history, implies 28%-38% growth.

Eric Jhonsa
Eric Jhonsa

Editor

Q4 op. income guidance is at $1B-$4.5B, below a $5.81B consensus. The guidance assumes ~$4B worth of COVID-19-related expenses.

Eric Jhonsa
Eric Jhonsa

Editor

Shares are up 1.8% after hours.

Eric Jhonsa
Eric Jhonsa

Editor

For Q4, Amazon is guiding for revenue of $112B-$121B, largely above a $112.66B consensus.

Eric Jhonsa
Eric Jhonsa

Editor

Results are out. Revenue of $96.15B beats a $92.78B consensus. GAAP EPS of $12.37 beats a $7.41 consensus.

Eric Jhonsa
Eric Jhonsa

Editor

The Q3 report should be out shortly.

Eric Jhonsa
Eric Jhonsa

Editor

Though up only moderately since the time of its Q2 report, Amazon's stock is up 75% YTD, leaving the company sporting a $1.6T market cap heading into the Q3 report.

Shares have risen 2.1% in Thursday trading to $3,230, amid a 2% Nasdaq gain.

Eric Jhonsa
Eric Jhonsa

Editor

The FactSet consensus is for Amazon to post Q3 revenue of $92.78B (+33% Y/Y) and GAAP EPS of $7.41 (+75%).

For seasonally big Q4 (Amazon usually shares quarterly revenue and op. income guidance), the consensus is for revenue of $112.66B (+29%) and op. income of $5.81B. It's worth noting here that Amazon has been guiding conservatively in recent quarters.


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