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Amazon will report results for the third quarter after the bell Thursday. 

Here’s what analysts are expecting:

  • Earnings: $1.14 per share expected by LSEG
  • Revenue: $157.2 billion expected by LSEG
  • Amazon Web Services: $27.5 billion, according to StreetAccount
  • Advertising: $14.3 billion, according to StreetAccount

The company warned in its most recent earnings report that sales in the third quarter could take a hit due to the unusually busy news cycle. Amazon CFO Brian Olsavsky said in August that the company observed shoppers were distracted by a combination of world events, including the Paris Olympics and the attempted assassination of former President Donald Trump at a Pennsylvania rally in July.

“Customers only have so much attention,” Olsavsky said at the time, and those factors made it “a tough quarter to forecast.”

Wall Street is projecting revenue growth of roughly 10% during the quarter, which would mark the fifth straight quarter of expansion in the low double digits and a slight deceleration from a year earlier, when sales increased 12.6%.

Earnings are growing much faster, due largely to Amazon CEO Andy Jassy’s widespread cost-cutting efforts. Beginning in 2022 and extending through 2024, Amazon initiated the largest layoffs in its history, cutting more than 27,000 jobs. Jassy has taken a harder line on the company’s unproven, costlier bets than his predecessor, Amazon founder Jeff Bezos.

The company has continued to restructure its teams this year, announcing last week that it would discontinue its Amazon Today rapid delivery service. A small number of employees were laid off as a result, CNBC reported.

Amazon is expected to report operating income of $14.7 billion during the quarter, up more than 31% from a year earlier, according to StreetAccount. The company in August guided for operating income between $11.5 billion and $15 billion.

Wall Street has applauded Jassy’s campaign to rein in expenses, with Amazon shares up about 23% year to date. The Nasdaq has gained roughly 30% over the same stretch.

“I think what’s changed over the last, call it year or two, is the relatively newer CEO has launched off on driving a real amount of operating income and profit margin on the retail business,” Brad Erickson, a senior analyst at RBC Capital Markets, told CNBC’s “Squawk Box” on Wednesday. “And so that is what I think has brought on a whole new group of investors and is keeping a whole new group of investors in this name.”

Amazon and Apple, which also reports quarterly results Thursday, round out a busy week of tech earnings. Google parent Alphabet posted third-quarter earnings that topped expectations, helped by blowout results in its cloud unit. Microsoft and Meta released earnings reports Wednesday.

During the third quarter, Amazon held its annual Prime Day megasale in July. Amazon said it hauled in “record-breaking sales” from Prime Day, though it didn’t disclose specific figures. Online spending in the U.S. climbed 11% year over year to a record $14.2 billion during the promotion event, according to Adobe Analytics data. That was roughly in line with expectations of $14 billion in sales.

Analysts are eager for an update from Amazon executives on the company’s plans for its Project Kuiper satellite internet service. Amazon has said it expects to invest more than $10 billion to build a network of 3,236 satellites in low Earth orbit that will provide high-speed broadband internet services to people around the world who lack such access. Third-party analysts have estimated Amazon may need to shell out up to $20 billion to get the project off the ground, GeekWire reported, citing data from market research firm Quilty Space.

“While there are risks to timing/success of satellite launches and regulatory milestones, the downside is quantifiable, with mgmt guiding to $10B lifetime investment,” said Oppenheimer analyst Jason Helfstein, pointing to the success of SpaceX’s Starlink as an indicator. The firm has an outperform rating on Amazon’s stock.

“We see a significant long-term revenue opportunity, with a target audience >1 billion people,” Helfstein added.

Amazon launched its first two prototype satellites into orbit last October atop a United Launch Alliance rocket. The company postponed its first full-scale Kuiper mission to early 2025 rather than the first half of the year as its rocket provider ULA prioritizes two U.S. Space Force missions.

Amazon will discuss the report on a conference call with analysts at 5 p.m. ET. The press hasn’t received an invitation to a media call typically held with Olsavsky after the company releases its earnings results.

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Apple’s services unit is now a $100 billion a year juggernaut after ‘phenomenal’ growth

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Apple's services unit is now a 0 billion a year juggernaut after 'phenomenal' growth

Apple CEO Tim Cook (C) joins customers during Apple’s iPhone 16 launch in New York on September 20, 2024. 

Timothy A. Clary | Afp | Getty Images

Apple’s second-largest division after the iPhone has turned into a $100 billion a year business that Wall Street loves.

In Apple’s earnings report on Thursday, the company said it reached just under $25 billion in services revenue, an all-time high for the category, and 12% growth on an annual basis.

“It’s an important milestone,” Apple CFO Luca Maestri said on a call with analysts. “We’ve got to a run rate of $100 billion. You look back just a few years ago and the the growth has been phenomenal.”

Apple first broke out its services revenue in the December quarter of 2014. At the time, it was $4.8 billion.

Apple’s services unit has become a critical part of Apple’s appeal to investors over the past decade. Its gross margin was 74% in the September quarter compared to Apple’s overall margin of 46.2%.

Services contains a wide range of different offerings. According to the company’s SEC filings, it includes advertising, search licensing revenue from Google, warranties called AppleCare, cloud subscription services such as iCloud, content subscriptions such as the company’s Apple TV+ service, and payments from Apple Pay and AppleCare.

On a January 2016 earnings call, when the reporting segment was relatively new, Apple CEO Tim Cook told investors to pay attention.

“I do think that the assets that we have in this area are huge, and I do think that it’s probably something that the investment community would want to and should focus more on,” Cook said.

Over the years, Apple has compared its services business to the size of Fortune 500 companies, which are ranked by sales, to give a sense of its scale. After Thursday, Apple’s services business alone, based on its most recent run rate, would land around 40th on the Fortune 500, topping Morgan Stanley and Johnson & Johnson.

Services appeals to investors because many of the subscriptions contained in it are billed on a recurring basis. That can be more reliably modeled than hardware sales, which will increase or decrease based on a given iPhone model’s demand.

“Yes, the the recurring portion is growing faster than the transactional one,” Maestri said on Thursday.

Apple’s fourth-quarter results beat Wall Street expectations for revenue and earnings on Thursday, but net income slumped after a one-time charge as part of a tax decision in Europe. The stock fell as much as 2% in extended trading.  

Apple boasts to investors that its sales from Services will grow alongside its installed base. After someone buys an iPhone, they’re likely to sign up for Apple’s subscriptions, use Safari to search Google, or buy an extended warranty.

Apple also cites a “subscription” figure that includes both its first-party services, such as Apple TV+ subscriptions, and users who sign up to be billed by an App Store app on a recurring basis.

The company said the installed base and subscriptions hit all-time-highs, but didn’t give updated figures. Apple said it had 2.2 billion active devices in February, and in August said it had topped 1 billion paid subscriptions.

Still, Apple faces questions about how long its services business can continue growing at such a rapid rate. Between 2016 and 2021, the unit sported significantly higher growth, reaching 27.3% at the end of that stretch.

In fiscal 2023, services growth dropped to 9.1% for the year, before recovering to about 13% the next year. Apple told investors that it expected services growth in the December quarter to be about what it was in fiscal 2024.

Cook was asked on Thursday what Apple could do to make some of its services and its Apple One subscription bundle grow faster.

“There’s lots of customers to try to convince to take advantage of it,” Cook said. “We’re going to continue investing in the services and adding new features. Whether it’s News+ or Music or Arcade, that’s what we’re going to do.”

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Amazon CEO pledges AI investments will pay off as capital expenditures surge 81%

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Amazon CEO pledges AI investments will pay off as capital expenditures surge 81%

Amazon CEO, Andy Jassy speaking with CNBC’s Jim Cramer on Mad Money in Seattle, WA. on Dec. 6th, 2023.

CNBC

Amazon CEO Andy Jassy is trying to reassure investors who may be worried about the future payoff of the company’s massive investments in generative artificial intelligence.

On a conference call with analysts following the company’s third-quarter earnings report on Thursday, Jassy pointed to the success of Amazon’s cloud computing business, Amazon Web Services, which has become a crucial profit engine despite the extreme costs associated with building data centers.

“I think we’ve proven over time that we can drive enough operating income and free cash flow to make this a very successful return on invested capital business,” Jassy said. “We expect the same thing will happen here with generative AI.”

Amazon spent $22.6 billion on property and equipment during the quarter, up 81% from the year before. Jassy said Amazon plans to spend $75 billion on capex in 2024 and expects an even higher number in 2025.

The jump in spending is primarily being driven by generative AI investments, Jassy said. The company is rushing to invest in data centers, networking gear and hardware to meet vast demand for the technology, which has exploded in popularity since OpenAI released its ChatGPT assistant almost two years ago.

“It is a really unusually large, maybe once-in-a-lifetime type of opportunity,” Jassy said. “And I think our customers, the business and our shareholders will feel good about this long term that we’re aggressively pursuing it.”

AI spending was a big topic on tech earnings calls this week. Meta on Wednesday raised its capital expenditures guidance, and CEO Mark Zuckerberg said he was “quite happy” with the team’s execution. Meanwhile, Microsoft‘s investment in OpenAI weighed on its fiscal first-quarter earnings released on Wednesday, and the company said capital spending would continue to rise. A day earlier, Alphabet CFO Anat Ashkenazi warned the company expects capital spending to grow in 2025.

Amazon has said its cloud unit has picked up more business from companies that need infrastructure to deploy generative AI models. It’s also launched several AI products for enterprises, third-party sellers on its marketplace and advertisers in recent months. The company is expected to announce a souped-up version of its Alexa voice assistant that incorporates generative AI, something Jassy said will arrive “in the near future.”

Amazon hasn’t disclosed its revenue from generative AI, but Jassy said Thursday it’s become a “multi-billion-dollar revenue run rate” business within AWS that “continues to grow at a triple-digit year-over-year percentage.”

“It’s growing more than three times faster at this stage of its evolution as AWS itself grew, and we felt like AWS grew pretty quickly,” he added.

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Amazon’s cloud unit records highest profit margin in at least a decade

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Amazon's cloud unit records highest profit margin in at least a decade

Matt Garman, CEO of Amazon Web Services, speaks during The Wall Street Journal’s Tech Live conference in Laguna Beach, California, on Oct. 21, 2024.

Frederic J. Brown | AFP | Getty Images

Amazon said revenue in its cloud unit increased 19% in the third quarter, just missing analyst estimates.

Revenue at Amazon Web Services totaled $27.45 billion, according to a statement Thursday, while Wall Street was expecting $27.52 billion, based on StreetAccount estimates. Year-over-year growth has accelerated for five consecutive quarters.

The artificial intelligence portion of AWS is in the billions of dollars in annualized revenue, more than doubling year over year, Amazon CEO Andy Jassy, who previously led AWS, said on a call with analysts.

“I believe we have more demand than we could fulfill if we had even more capacity today,” Jassy said. “I think pretty much everyone today has less capacity than they have demand for, and it’s really primarily chips that are the area where companies could use more supply.”

AWS leads the cloud infrastructure market over Google and Microsoft and is an important source of profit for Amazon.

On Tuesday, Google parent Alphabet said revenue from Google Cloud, which includes cloud applications as well as infrastructure, totaled $11.35 billion, up 35%. Microsoft said Wednesday that revenue from Azure and other cloud services grew 33%.

AWS recorded $10.45 billion in operating income, representing 60% of its parent’s profit. Analysts expected $9.15 billion.

The unit’s operating margin came in at 38%, the widest for AWS since at least 2014. Google Cloud reported an operating margin of 17%.

“We’re being very measured in our hiring,” Brian Olsavsky, Amazon’s finance chief, said on the call.

During the quarter, Oracle said it will bring database services to AWS.

“If this is successful, we would love to find more pieces of their application stack that could run well in AWS and help customers do that,” AWS CEO Matt Garman told CNBC in a September interview.

Also in the quarter, AWS announced plans to discontinue some services, including code-repository tool CodeCommit. Garman told TechCrunch that AWS “can’t invest in everything.”

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