Amazon’s profit margin nears record after CEO Andy Jassy’s dramatic cost-cutting efforts
Andy Jassy, CEO of Amazon, speaks at the ceremonial ribbon cutting prior to tomorrow’s opening night for the NHL’s newest hockey franchise the Seattle Kraken at the Climate Pledge Arena on October 22, 2021, in Seattle.
Bruce Bennett | Getty Images Sport | Getty Images
Amazon founder Jeff Bezos famously told rivals, “Your margin is my opportunity.” His successor as CEO, Andy Jassy, is telling Wall Street about opportunities to increase margin.
Jassy, who took the helm in mid-2021, has been laser focused on trimming costs across the company for over a year, eliminating 27,000 jobs since last fall, axing some riskier bets and reshaping Amazon’s fulfillment network to emphasize speed and efficiency.
Suddenly, Amazon is a profit machine.
In its third-quarter earnings report on Thursday, Amazon reported an operating margin of 7.8%, the highest since it reached a record of 8.2% in the first quarter of 2021. The company’s operating margin, which is the profit left after subtracting costs to operate the business, was 2% a year ago and has historically hovered in the low single digits. Bezos was perfectly comfortably running with a negative margin on occasion.
But the world has changed since early last year, when Wall Street turned on tech and an extended bull market came to a halt. Rising inflation and higher rates pushed investors out of risk and forced tech companies to resize.
Jassy used some form of the word optimize more than 20 times throughout the earnings call on Thursday. He was primarily referring to Amazon’s own cost-cutting endeavors or the efforts made by customers of Amazon Web Services to lower their cloud bills while maintaining or even improving performance.
When it comes to client spending, Jassy said things are starting to look a little better.
“While optimization still remains a headwind, we’ve seen the rate of new cost optimizations slowdown in AWS, and we are encouraged by the strength of our customer pipeline,” he said. AWS has experienced slowing growth in recent quarters but is seeing some “cost optimization attenuate,” especially as demand for generative artificial intelligence picks up, he said.
AWS revenue increased 12% in the quarter, a slower pace of expansion than what was reported by smaller rivals Microsoft Azure and Google Cloud.
Amazon’s stock initially seesawed after hours. But Jassy’s optimistic commentary on the call boosted the shares more than 5% to $125.98. Jassy and other Amazon executives spoke at length about the company’s progress when it comes to reining in costs.
Net income more than tripled to $9.9 billion, or 94 cents a share, from $2.9 billion, or 28 cents a share, a year earlier. Analysts were expecting earnings of 58 cents a share, according to LSEG, formerly known as Refinitiv. Revenue also beat estimates, climbing 13% to $143.1 billion.
The company pointed to a “regionalization” effort within its shipping operations that’s led to faster yet cheaper deliveries. Instead of operating as a national model, the company carved up its shipping network into eight regions, which means packages travel over shorter distances and are handled by fewer employees. That’s lowered the “cost to serve,” Jassy said.
Advertising services, which along with AWS delivers fatter profits than core retail, was key to the earnings bump in the third quarter. Revenue accelerated 26%, topping $12 billion. Ad growth is primarily driven by third-party sellers and brands that pay to have their products appear higher in search results on Amazon’s website and app, CFO Brian Olsavsky said.
Jassy said the ad business is also getting a big boost from the company’s deal with the National Football League. Amazon Prime Video is in its second season carrying “Thursday Night Football, and Jassy said ratings through the first six weeks are up 25% from last year.
“We’re also doing much better on the advertising side than we did in our first year, and that’s a property that’s really valuable,” Jassy said. “It’s the one game that week and advertisers want to be in front of customers because there’s 13 million customers a week watching.”
In terms of cutting costs, Jassy isn’t done. Amazon’s still being cautious on headcount by taking a slow approach to hiring, rehiring and filling open positions, Olsavsky told analysts.
Amazon’s spending on sales and marketing declined during the quarter from a year earlier, and the company has put in place better cost controls in “non-people categories” like infrastructure, Olsavsky added.
Facebook’s CEO Mark Zuckerberg (L) speaks with Microsoft’s CEO Satya Nadella after posing for a family picture with guests who attend the “Tech for Good” Summit at the Elysee Palace in Paris, on May 23, 2018.
Charles Platiau | AFP | Getty Images
Microsoft CEO Satya Nadella on Tuesday said that as much as 30% of the company’s code is now written by artificial intelligence.
“I’d say maybe 20%, 30% of the code that is inside of our repos today and some of our projects are probably all written by software,” Nadella said during a conversation before a live audience with Meta CEO Mark Zuckerberg.
The pair of CEOs were speaking at Meta’s inaugural LlamaCon AI developer event in Menlo Park, California. Nadella added that the amount of code being written by AI at Microsoft is going up steadily.
Nadella asked Zuckerberg how much of Meta’s code was coming from AI. Zuckerberg said he didn’t know the exact figure off the top of his head, but he said Meta is building an AI model that can in turn build future versions of the company’s Llama family of AI models.
“Our bet is sort of that in the next year probably … maybe half the development is going to be done by AI, as opposed to people, and then that will just kind of increase from there,” Zuckerberg said.
Microsoft and Meta together employ tens of thousands of software developers, but they’re the latest companies to discuss how AI is replacing some of the work written by human software developers.
Since OpenAI’s launch of ChatGPT in late 2022, people have turned to AI for a number of tasks, including customer service work, generating sales pitches and software development itself.
Google CEO Sundar Pichai in October said that more than 25% of new code was written by AI. Earlier this month, Shopify CEO Tobi Lutke told employees that they will have to prove AI cannot do a job before asking for more headcount. Similarly, Duolingo CEO Luis von Ahn on Monday announced in a memo that the language-teaching company will gradually turn to AI in lieu of human contractors.
Earlier this month CNBC and other outlets reported that OpenAI was in talks to acquire Windsurf, a startup with “vibe coding” software that spits out whole programs with a few words of input. The dream is that with machines helping to write code, organizations will be able to produce more and better software.
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A Waymo self-driving car, seen with a driver, stops at a red light outside the U.S. Capitol in Washington, D.C., on Friday, March 31, 2025.
Bill Clark | CQ-Roll Call, Inc. | Getty Images
Alphabet-owned Waymo and Toyota on Tuesday announced a preliminary partnership to explore bringing robotaxi tech to personally-owned vehicles.
“The companies will explore how to leverage Waymo’s autonomous technology and Toyota’s vehicle expertise to enhance next-generation personally owned vehicles,” the two companies announced.
The companies said they aim to use the partnership to more quickly develop driver assistance and autonomous vehicle technologies for personal vehicles. Toyota is the world’s largest automaker by sales.
Waymo co-CEO Tekedra Mawakana said the strategic partnership could also result in the Google-owned company incorporating Toyota’s “vehicles into our ride-hailing fleet.”
The Toyota tie-up is the latest automotive partnership for Waymo.
The self-driving company has previously worked with automakers such as Jaguar Land Rover, Stellantis predecessor Fiat Chrysler, Daimler Trucks, Mercedes-Benz parent Daimler, Hyundai Motor and China’s Geely Zeekr. The partnerships, many of which touted long-term tie-ups, largely resulted in automakers producing modified vehicles for testing or for Waymo to use in its fleets.
The partnership with Toyota will not affect Waymo’s plans to deploy Hyundai and Zeekr vehicles through the Waymo One service in the future, a spokesman for the Alphabet-owned company told CNBC.
Waymo is now serving 250,000 paid rides per week, up from 200,000 in February, before Waymo opened in Austin and expanded in the San Francisco Bay Area in March. Waymo is already running its commercial, driverless ride-hailing services in the San Francisco, Los Angeles, Phoenix and Austin regions.
Alphabet CEO Sundar Pichai noted in first-quarter earnings last week that Waymo has not entirely defined its long-term business model, and there is “future optionality around personal ownership” of vehicles equipped with Waymo’s self-driving technology.
Waymo and Toyota are not the only companies turning their focus to personally-owned autonomous vehicles. When GM announced in December that it was abandoning its Cruise robotaxi business, the company said it would instead focus on the development of autonomous systems for use in personal vehicles.
Toyota previously invested in and partnered with Tesla, Elon Musk’s automaker which now aims to compete with Waymo on driverless tech. Toyota sold the its stake in the EV maker in June 2017.
Tesla, once seen as a pioneer in self-driving tech, does not yet produce cars that are safe to use without a human driver at the wheel, ready to steer or brake at any time.
Elon Musk, Tesla CEO, criticized Waymo on a recent earnings call claiming the robotaxis are too expensive for mass-production. Musk also promised Tesla will be “selling fully autonomous rides in June in Austin,” using Model Y vehicles with a new “unsupervised” version of the company’s “Full Self-Driving” or FSD systems installed.
— CNBC reporter Michael Wayland contributed to this report.
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