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.
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Dogecoin shot higher on Tuesday night, extending its postelection surge after President-elect Donald Trump formally announced the creation of the Department of Government Efficiency, which he referred to as “DOGE” in his statement.
Tesla CEO Elon Musk and Vivek Ramaswamy, former Republican presidential candidate and Strive Asset Management co-founder, will lead the department, Trump said in a statement. Together, they “will pave the way for my Administration to dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.”
Dogecoin was last up nearly 20%. It has been one of the biggest winners in the postelection rally, gaining 153% since election day compared to bitcoin’s 30% rise in the same period. It also shot past XRP this week to become the sixth largest cryptocurrency by market cap.
Dogecoin jumped after President-elect Donald Trump announced the creation of the Department of Government Efficiency, or “DOGE.”
Memecoins are seen as a gauge of retail interest and risk appetite in crypto. When memecoin activity ramps up, it usually indicates that retail investors are participating and have an appetite to speculate further out on the risk curve.
Trump initially floated the idea of an efficiency commission in September. Since then, Musk — who has called himself the “Dogefather” in the past and has been known to make public comments about the memecoin that influence its price — has posted on his social media platform X, referring to the commission as the “Department of Government Efficiency” or “D.O.G.E.”
Dogecoin gained relevance in 2021 following Musk’s endorsement and continuous hype on social media, which has since become a big catalyst for the coin. In May that year, Musk’s posts fueled dogecoin’s rally to its all-time high of 67 cents, per Coin Metrics. Though his appearance at the time on SNL, in which he called dogecoin “a hustle,” sent its price crashing down.
The rest of the crypto market was on pause from its postelection rally. Bitcoin was trading flat at about $87,000, after briefly touching $90,000 in late afternoon trading. Crypto stocks Coinbase and MicroStrategy were lower by 1% and 2%, respectively, in extended trading.
Elon Musk embraces Donald Trump during a campaign rally in Butler, Pennsylvania on Oct. 5, 2024.
Anna Moneymaker | Getty Images
President-elect Donald Trump said Tuesday that Elon Musk and former Republican presidential hopeful Vivek Ramaswamy will lead an efficiency group when his second term begins in January.
Trump wrote in a post that the Department of Government Efficiency, or DOGE, will “become, potentially, ‘The Manhattan Project’ of our time.” He also said the group would, “pave the way” for his next administration to “dismantle Government Bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies.”
Trump didn’t specify where cuts will take place or when the department may be formed. Congress hasn’t created or funded such an office. He said the group’s “work will conclude no later than July 4, 2026.”
Musk’s involvement in the envisioned group was previously promised by Trump and touted by the Tesla CEO, who spent an estimated $200 million backing the Republican nominee’s 2024 campaign, as a reason to put the former president back in the White House. Musk, who also runs defense contractor SpaceX, has reportedly been stationed at Trump’s Mar-a-Lago resort in Florida since Election Night.
Ramaswamy, who challenged Trump in the Republican primary, is co-founder of investment firm Strive Asset Management. He has opposed the widespread adoption of environmental, social and governance, or ESG, principles by companies.
Trump announced a number of other appointments Tuesday, including naming Fox News host Pete Hegseth as his pick for defense secretary and John Ratcliffe as CIA director.
The Spotify logo is displayed on a screen on the floor of the New York Stock Exchange on Dec. 4, 2023.
Brendan Mcdermid | Reuters
Spotify shares rose in extended trading Tuesday after the Swedish music streaming company issued a profit forecast for the fourth quarter that topped estimates.
Here’s how the company did, compared with what analysts expected:
- Earnings per share: 1.45 euros vs. 1.72 euros expected by LSEG
- Revenue: 3.99 billion euros vs. 4.02 billion euros expected by LSEG
- Monthly active users (MAUs): 640 million vs. 639 million expected by StreetAccount
While the company’s earnings and revenue for the third quarter trailed estimates, investors focused instead on guidance for the current period.
Spotify said operating income in the fourth quarter will come in at 481 million euros, exceeding the average analyst estimate of 432.7 million euros, according to StreetAccount. MAUs will increase to 665 million, while analysts were expecting 659.3 million, based on a StreetAccount estimate.
Still, revenue guidance trailed estimates. The company said sales will reach 4.1 billion euros, below the average analyst estimate of 4.26 billion euros, according to LSEG.
Subscribers to Spotify Premium, the company’s ad-free membership service that allows users to select songs on an unlimited basis, increased 12% year over year to 252 million, slightly ahead of estimates.
Spotify shares rose about 8% after the report to $452.35 after rising 2.2% in regular trading. The stock has more than doubled in value this year.
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