Amazon says cloud business stabilising but shoppers cautious heading into holiday season

Bengaluru – Amazon.com on Thursday said that growth in its cloud business is stabilising as it signed new deals, but warned that consumers remained wary about spending going into the holiday quarter.

The company predicted a rise in revenue over the key holiday season that could still miss Wall Street expectations, as it reported strong third-quarter results buoyed by a recent marketing blitz and faster delivery.

Shares in the company ricocheted after hours, rising, falling and ultimately rising 5 per cent.

Facing an array of challenges to its business, Amazon is trying to keep its mantle as the world’s biggest cloud provider and online retailer.

The company has sought to bolster its cloud, answering rivals Google and Microsoft with a deal to invest up to US$4 billion (S$5.5 billion) in chatbot-maker Anthropic and touting an artificial intelligence (AI) service drawing thousands of users.

Amazon has also reorganised its delivery network to locate goods closer to shoppers, letting it fulfil orders faster than before, and more cheaply.

At the same time, it has faced an array of challenges, among them tight household budgets, businesses scrutinising their cloud spending and a September lawsuit by the United States Federal Trade Commission, which accuses Amazon of inflating prices and wielding monopoly power.

The company is contesting the claims.

Against this backdrop, the company has forecast revenue to be between US$160 billion and US$167 billion for the all-important holiday quarter ending Dec 31.

Analysts polled by LSEG were expecting sales of US$166.62 billion, at the higher end of Amazon’s guidance.

Hargreaves Lansdown equity analyst Sophie Lund-Yates said Amazon’s ramp-up in seasonal hires boded well for consumer discretionary spending, to a point.

“We could be looking at a final spending push before a substantial pull back in the new year. So, this is a risk that will need monitoring closely,” she said.

Amazon’s fortunes are often tied to those of its cloud-computing division. Long a major source of profit, Amazon Web Services (AWS) saw growth slow down in earlier quarters.

Meanwhile, its rival Microsoft, the second-largest cloud provider by revenue after Amazon, beat Wall Street estimates this week as its customers geared up for AI upgrades.

Amazon chief executive Andy Jassy said in a call with analysts that AWS was picking up the pace of signing and closing deals, among them large expansions with existing customers as well as first-time agreements.

He added in a statement: “Our AWS growth continued to stabilise.”

The company is also piquing customers’ interest through so-called generative AI, which, like the chatbot ChatGPT, can be prompted to conjure text, images and other content with human-like ability.

Mr Jassy said he expected generative AI to lead to tens of billions of dollars in revenue for AWS over the next several years.

In total, AWS brought in revenue of US$23.1 billion in the third quarter, compared with analysts’ expectations of US$23.09 billion.

‘Cautious about price’

Amazon’s overall revenue in the third quarter rose 13 per cent to US$143.1 billion, beating Wall Street estimates of US$141.41 billion, according to LSEG data.

Net income rose to US$9.9 billion in the third quarter from US$2.87 billion a year earlier.

Several initiatives helped Amazon navigate the terrain.

The company has said a third-quarter shopping blitz known as Prime Day saw its biggest sales day ever, while a follow-up promotion period was its largest October holiday kick-off to date.

Amazon’s same-day delivery services have also helped its margins by spurring shoppers to place more frequent and bigger orders. The retailer invested heavily in recent years to make the service available in more places.

Amazon has also cut costs aggressively. After planning 27,000 layoffs, or what had been 9 per cent of its roughly 300,000-person staff starting in 2022, it has since revealed more role reductions, at Amazon Fresh stores, for instance. REUTERS