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Tuesday, June 25, 2024

Amazon’s Revenue Surges with Improved Consumer and Business Spending

Amazon has revealed strong quarterly sales, indicating that both corporations and consumers are spending despite the easing of inflation. The company reported $143.1 billion in revenue for the third quarter, marking a 13 percent increase from the previous year, with profits totaling $9.9 billion. These results exceeded both analysts’ expectations and Amazon’s own forecasts. However, the retail giant issued a cautious forecast for the upcoming holiday season, suggesting that sales growth might moderate during the year’s final quarter.

The final quarter, encompassing Christmas shopping and Amazon’s October deals event, typically ranks as the company’s most significant period of the year. The performance of Amazon’s cloud computing division has been under close scrutiny because it generates a substantial portion of the company’s profits. Over the past year, cloud computing growth had significantly decelerated due to economic uncertainties, with enterprise customers carefully monitoring their budgets. In the recently reported results, there were signs of stabilization, with the cloud computing division recording a 12 percent increase in sales, reaching $23 billion and generating $7 billion in operating profit.

Brian Olsavsky, Amazon’s Chief Financial Officer, described the current situation as “delicate.” He noted that while some business customers had slowed their efforts to reduce cloud computing costs, others were launching new cloud projects. Despite being a leading cloud computing provider, Amazon has been working to dispel the notion that it lags behind competitors, particularly Microsoft and Google, in the field of generative artificial intelligence.

A year ago, investors expressed concerns about Amazon’s retail business, whose profits had declined following an overexpansion during the pandemic. Amazon’s CEO, Andy Jassy, has been focusing on boosting profits by implementing cost-cutting measures, which included layoffs and a significant reduction in hiring. The company’s workforce decreased by 3 percent from the previous year, amounting to 1.5 million employees in the most recent quarter, though still twice the pre-pandemic level.

Amazon also introduced changes to its customer order fulfillment processes, such as placing inventory closer to customers, which improved delivery speed and reduced costs. The transition from a single national fulfillment network in the U.S. to eight distinct regions delivered better-than-expected results.

Faster delivery speeds have led to an increase in purchase frequency, according to Mr. Olsavsky, and reduced costs have contributed to improved profit margins. In Amazon’s most mature market, North America, consumer and retail sales surged by 11 percent to $87.9 billion, generating $4.3 billion in operating profit.

The most profitable segments of Amazon’s e-commerce business, including its advertising offerings, showed strong performance. The growth of Amazon’s advertising revenue accelerated to 26 percent, reaching $12 billion during the quarter. Additionally, services provided by Amazon to third-party sellers on its marketplace saw a 20 percent sales growth, totaling $34 billion. The costs associated with sellers conducting business on Amazon have been a central issue in the long-anticipated antitrust lawsuit filed by the Federal Trade Commission last month.

David Faber
David Faber
I am a Business Journalist of The National Era
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