Amazon Stock Pops 6% on Powerful Earnings Growth: 6 Key Metrics ...

Motley Fool - Fri Nov 1, 6:28AM CDT

Shares of Amazon (NASDAQ: AMZN) jumped 6% in Thursday's after-hours trading, following the e-commerce and cloud computing leader's release of its third-quarter 2024 report. The stock's gain is attributable to the quarter's revenue and earnings exceeding Wall Street's estimates, with the bottom-line beat particularly impressive.

Investors seemed to shrug off that fourth-quarter revenue guidance was a little lighter than analysts had been expecting. This makes sense as it's likely that management was conservative in setting its outlook since it's challenging to forecast consumer spending during the big holiday season. Moreover, there's more potential volatility surrounding spending this holiday quarter than usual due to the upcoming presidential election.

Below is an overview of Amazon's Q3 2024 results and its guidance, centered around six key metrics.

Amazon's net quarterly sales grew 11% year over year to $158.9 billion, surpassing the $157.2 billion Wall Street had projected. That result also topped the company's guidance range of $154 billion to $158.5 billion. Revenue in constant currency also grew 11%.

Growth got a boost from Prime Day in July, which was the company's "largest and most successful" Prime Day, CEO Andy Jassy said on the earnings call.

Data source: Amazon. YOY = year over year.

The company's AWS cloud computing business performed well. Its year-over-year revenue growth of 19% was the same as in the prior quarter (Q2), and that quarter marked an acceleration from Q1, when this metric was 17%.

For context, the North America segment's year-over-year revenue growth was 9% in Q2 and 12% in Q1. And international's year-over-year revenue growth was 7% (10% in constant currency) in Q2 and 10% (11% in constant currency) in Q1.

AWS was capacity-constrained due to very robust demand for artificial intelligence (AI) capabilities. "I actually believe that the rate of growth there has a chance to improve over time as we have bigger and bigger capacity," Jassy said about AWS on the earnings call.

Amazon's digital advertising business continues to perform well. This business generated revenue of $14.3 billion, an increase of 19% year over year. That's 9% of Amazon's total revenue.

Amazon doesn't share metrics on this business's profitability, but this type of business is known to be extremely profitable. That's why it deserves to be broken out here.

The quarter's operating profit surged 55% year over year to $17.4 billion. This result sped by Amazon's guidance range of $11.5 billion to $15 billion.

Data source: Amazon.

All segments experienced year-over-year expansions of their operating margin (operating income/revenue), as their operating income growth exceeded their revenue growth. AWS' operating margin of 37.8% was the highest so far this year.

As usual, AWS powered Amazon's overall operating profit, contributing 60% to this metric. The biggest positive surprise was probably the North America segment, with its robust operating profit growth of 33%.

In Q3, net income was $15.3 billion, or $1.43 per share, up 52% year over year. This result raced by the EPS of $1.14 that Wall Street had expected.

Operating cash flow grew 57% to $112.7 billion over the last year. Free cash flow (FCF) was $47.7 billion for this period, up 123% from the year-ago period.

The company ended the quarter with cash and cash equivalents of $75.1 billion, and long-term debt of $54.9 billion.

For the fourth quarter, management guided for net sales in the range of $181.5 billion to $188.5 billion, which would amount to growth of 7% to 11% year over year.

Going into the report, Wall Street had been modeling for Q4 revenue of $186.2 billion, or growth of 9.5% year over year. So, Amazon's guidance at the midpoint (which is $185 billion, or 9% growth) was a bit lower than what analysts had been expecting.

Amazon, which doesn't provide earnings guidance, also said that it expects Q4 operating income of $16 billion to $20 billion, compared with $13.2 billion in the prior-year period.

In short, Amazon turned in a great quarter. It makes sense that investors rejoiced and drove shares up 6% in after-hours trading on Thursday.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.