21st Century Economic Reporter Dong Jingyi reports from Shanghai
On October 26th local time, Amazon released its financial report for the third quarter of 2023. According to the financial report, Amazon's revenue for the quarter was 143.1 billion US dollars, a year-on-year increase of 13%; The net profit was 9.9 billion US dollars, a year-on-year surge of 241%.
Both revenue and profit exceeded expectations, mainly due to the growth in retail sales and significant cost reductions. After experiencing difficulties caused by soaring inflation and rising interest rates in 2022, Amazon is accelerating its recovery. Since last autumn, the company has laid off 27000 employees and reduced multiple unprofitable businesses.
From a revenue perspective, the profit margin of the company's North American and international businesses has improved, reaching its highest level in over two years, bringing the overall profit margin to a new high since mid 2021. Among them, the operating profit of the North American business in the third quarter was $4.3 billion, compared to a loss of $400 million in the same period last year. The operating loss of international business narrowed from $2.5 billion in the same period last year to $100 million.
Another reason for the rapid profit growth is that Amazon's pre tax valuation profit on its investment in electric vehicle Rivian Automotive common stock reached $1.2 billion in the quarter. From last year to the first quarter of 2023, Amazon's investment in Rivian was at a loss.
Specifically, the sales revenue of cloud computing service AWS was $23.06 billion, slightly lower than market expectations of $23.13 billion, an increase of 12% compared to the same period last year. Although the previous six consecutive quarters of slowdown have ended, the 12% growth rate is still not high. During the same period, Microsoft Azure's revenue increased by 29%, while Google Cloud's revenue increased by 22%.
Amazon CFO Brian Olsavsky did not say that AWS's growth has bottomed out, but explained that the department is facing some headwinds. This may indicate that the reduction in enterprise spending on cloud services is not yet over.
Artificial intelligence has become an important lever for igniting cloud business. Amazon CEO Andy Jassy stated that artificial intelligence represents an opportunity worth "tens of billions of dollars" for Amazon's AWS. This year, AWS launched the Bedlock AI service, which simplifies the development of large language models.
90% of global IT business processing is still based on local devices, and we believe this proportion will reverse within 10 years, especially with generative artificial intelligence technology, "said Andy Jassy.
This also means that the "second growth curve" represented by cloud, AI, and industry digitization will break through, which will become a key factor for technology giants such as Amazon to resolve long-term crises.
Advertising remains Amazon's strongest growing business, with sales increasing by 26% from $9.6 billion in the same period last year to $12.1 billion, higher than analysts' consensus expectation of $11.6 billion. Analysis suggests that third-party sellers and major brands have increased advertising spending to increase their visibility in increasingly competitive markets.
E-commerce business continues to recover. According to the financial report, Amazon's core e-commerce business sales in the third quarter increased by 7% year-on-year to approximately $57.3 billion, higher than the expected $57 billion. Amazon once referred to July's Prime Day as its largest promotional event in history.
However, Amazon has also experienced multiple challenges this year, including regulatory and market competition. In terms of regulation, in late September, the Federal Trade Commission and 17 state attorneys general filed a lawsuit against Amazon, accusing it of using its "monopoly power" to raise prices, lower the quality of shoppers, and illegally exclude competitors, thereby disrupting competition. Amazon countered in October by claiming that the Federal Trade Commission had filed a misleading lawsuit against Amazon, which, if successful, would force Amazon to adopt practices that actually harm consumers and businesses.
Looking ahead to the fourth quarter, Amazon expects net sales to be between $160 billion and $167 billion, while the market expects $167.4 billion, an increase of 7% to 12% compared to the fourth quarter of 2022.
Currently, although Amazon is still the global leader in e-commerce, it is also facing a situation of "encirclement" and traffic decline from multiple competitors. In addition to overseas e-commerce platforms such as eBay, Wish, and Shopee, domestic cross-border e-commerce platforms such as SHEIN, TikTok Shop, and Temu are growing rapidly.
According to Comscore, an analysis company, Temu's visits to the United States increased tenfold from September 2022 to March 2023, successfully surpassing 70.5 million in March of this year. SHEIN's monthly number of independent visitors to the United States has also doubled, reaching approximately 41 million. During the same period, the number of Amazon users in the United States decreased significantly, from 217.5 million to 211 million.