Amazon is one of the largest online marketplaces in the world, offering everything from books and electronics to clothing, groceries, and home goods. Beyond its retail operations, Amazon has ventured into various other domains, including cloud computing services through Amazon Web Services (AWS), digital streaming services like Amazon Prime Video, and AI. Its advancement in AI and the deployment of AI across its businesses have propelled the company to grow further.
| Financial indicators | Q3 2023 (US$ million) | Q3 2024 (US$ million) | Percentage change |
| Revenue | 143,083 | 158,877 | +11.0% |
| – North America | 87,887 | 95,537 | +8.7% |
| – International | 32,137 | 35,888 | +11.7% |
| – AWS | 23,059 | 27,452 | +19.1% |
| Operating income | 11,188 | 17,411 | +55.6% |
| Net income | 9,879 | 15,328 | +55.2% |
| Operating cash flow | 21,217 | 25,971 | +22.4% |
Revenue increased 11.0% year-on-year to US$158.9 billion, excluding a negative 20 basis-point impact from foreign exchange rates (much lower than the previous guidance at 90 basis points). Operating income increased 55.6% year-on-year to US$17.4 billion, which was a record high and exceeded the high end of its guidance range by US$2.4 billion.
Revenue from North America and the International segment grew 8.7% and 11.7% year-on-year to US$95.5 billion and US$35.9 billion respectively. Amazon continues to anchor on wide selection, low prices, free speedy (even same-day) delivery, and expansive reach. Its customer-centric approach, prioritising customer needs and experience, is a key driver of its success.
North America segment operating income improved 31.5% year-on-year to US$5.7 billion in Q3 2024 while its operating margin increased from 4.9% to 5.9% over the same period. In Q3 2024, Amazon optimised its fulfilment network costs by improving inventory placement, leading to better transportation productivity and increased shipping efficiency.
The International segment posted an operating profit of US$1.3 billion in Q3 2024 compared to an operating loss of US$95 million a year ago. International operating margin improved from -0.3% in Q3 2023 to 3.6% in Q3 2024. During the quarter, the company did well in developed countries like the U.K. and Germany because of transport efficiency.
AWS is a significant revenue driver for Amazon, with strong growth and profitability. It is the fastest-growing segment, driven by the increasing cloud adoption and growing demand for generative AI solutions. Its overall revenue contribution increased from 16.1% in Q3 2023 to 17.3% in Q3 2024. Its growth has reaccelerated in the past four quarters.
AWS operating income surged 49.8% year-on-year to US$10.4 billion in Q3 2024 due to optimised infrastructure utilisation, better cost efficiencies, and lower business costs as the pace of hiring was controlled. The estimated useful life of its servers has been extended during the year, which lifted the AWS margin by about 200 basis points. AWS operating margin improved from 30.3% in Q3 2023 to 38.1% in Q3 2024, a record since 2014. The margin may fluctuate, depending on factors like investment in new products and services, staffing changes, and capital expenditure.
North America
Although Amazon is a major player, it still holds a relatively small market share. CEO Andrew Jassy sees substantial growth potential in the retail market, especially as the trend toward online shopping accelerates.
Consumers nowadays buy more daily essential items (tend to be sold more by Amazon directly than third-party sellers) such as non-perishable grocery as well as health, beauty, and personal care products from Amazon with a lower average selling price. They tend to spend more as well as more often on Amazon.
Amazon continues to expand its Prime member benefits to make the subscription service stickier. These include unlimited grocery delivery from Whole Foods Market, Amazon Fresh, and local partners, fuel savings at selected U.S. stations as well as expanded and faster Amazon Pharmacy coverage. The number of paid Prime members in the U.S. and globally continued to grow in Q3 2024, boosted by its tenth annual Prime Day event in July.
To improve inventory efficiency and reduce costs, Amazon is investing in its fulfilment network and optimising its inbound network, including new fulfilment centres and design as well as AI-powered automation. This improves processing time by up to 25% and more items are now eligible for same-day delivery. The cost to serve is expected to lower by 25%. Over 40 million customers received their delivery within the same day, which translated into a more-than-25% increase year-on-year in Q3 2024.
As a result, Amazon can afford to offer more lower-priced items economically to support business growth as consumers are cautious with their spending amid economic headwinds. Notably, unit growth (12%) outpaces revenue growth across North America and the international segment.
Amazon is expanding its advertising business particularly in areas like Sponsored Products and Prime Video ads as advertising revenue improved 18.8% year-on-year to US$14.3 billion. The company had a successful first broadcast season on Prime Video. Amazon is improving ad relevance on Sponsored Products and providing more optimisation tools to drive better performance for advertisers. Amazon is also leveraging AI to automate ad creation, making it easier for advertisers to produce high-quality ads.
Amazon has introduced new AI-powered tools to enhance the shopping experience for both consumers and sellers including Rufus AI Shopping Guides to help customers find products that they are looking for as well as Project Amelia to offer tailored business advice to sellers to improve productivity and sales growth.
International
Amazon’s emerging markets are experiencing healthy revenue growth. The company is investing strategically in Prime benefits in these markets to leverage their cost structures.
Advertising continues to grow strongly and is a significant revenue driver for both North America and international segments.
Amazon has been consistently offering the fastest delivery times for Prime members globally for two consecutive years. To further enhance delivery speed (including same-day delivery) and efficiency, the company is optimising its supply chain including improving outbound logistics to bring products closer to customers. Rufus is also being expanded to new markets like the UK, India, and several European countries.
Amazon has introduced several new Kindle devices including the AI-powered Kindle Scribe which registered strong initial sales. On average, Kindle users read more than 20 billion pages monthly globally.
AWS
According to Jassy, AWS’s AI business is a ‘multibillion-dollar revenue run rate business’. The AI business has been rapidly expanding, its year-on-year growth is over 100% and is over three times faster than AWS itself did at a similar stage.
AWS operates on a capital-intensive model. To meet increasing demand, they must invest heavily in data centres, networking equipment, and AI hardware to support future growth. These investments often precede revenue generation, as the hardware has a long lifespan (20-30 years for data centres). Capital expenditure is expected to reach US$75 billion in 2024 and even more for 2025, while AWS takes up the lion’s share.
The AWS platform has attracted notable customers like Booking.com, Fast Retailing, National Australia Bank, and Toyota. By combining powerful technologies like the Aurora database and Graviton processors, AWS offers cost-effective and efficient solutions. Tools and services like Amazon SageMaker, Amazon Q, and Amazon Bedrock are empowering developers to build and deploy sophisticated AI applications. The integration of third-party models like Anthropic, Meta, Mistral AI, and Stability AI further enhances Amazon Bedrock’s capabilities.
As AI workloads scale, clients’ costs can escalate rapidly. To address this, Amazon has developed custom silicon chips, Trainium for training and Inferentia for inference. The upcoming Trainium 2 drives customer interest as it promises better price-performance. Amazon has increased production orders to meet the growing demand for these chips amid limited availability.
Key analyst questions
Jassy explained to an analyst that consumers trade down and are focusing on essential items like groceries, prioritising immediate needs over discretionary purchases, as evident in Amazon’s Prime events. Despite the challenges posed by economic conditions, the company sees this shift as an opportunity to capitalise on the changing consumer behaviour and drive growth. According to him, approximately 60% of the products sold on Amazon are from third-party sellers.
CFO Brian Olsavsky told analysts that Amazon is focusing on improving profitability in both domestic and international markets. While there have been fluctuations in the operating profits of both markets, the overall trend is positive, with year-over-year improvement in the past seven quarters. The company is replicating its business strategy in the U.S. for the international segment.
AWS faces a significant logistical challenge in managing its global infrastructure. This includes ensuring efficient allocation of resources and optimal inventory levels across numerous data centres and availability zones to avoid shortages or overstocking. The company plans based on demand signals. Jassy drew parallels to the early days of AWS, where it started with intense competition and lower margins but eventually achieved significant profitability, could be informing its strategy for generative AI.
Amazon is investing heavily in generative AI technologies, which could lead to significant upfront costs. This might temporarily lower profit margins as the company focuses on building infrastructure, acquiring talent, and developing products. Its primary goal is to rapidly establish a strong market position in generative AI. This could involve offering competitive pricing, subsidising costs, and even operating at a loss in the short term. As the generative AI market matures, Amazon will become more profitable. Costs will also decrease as the technology becomes more widely adopted and efficient, leading to improved margins.
This investment strategy is crucial for AWS to maintain its growth and provide reliable services to its customers. Amazon is willing to sacrifice short-term profits for long-term market dominance and financial success in the generative AI space. Jassy described generative AI as a ‘once-in-a-lifetime type of opportunity’ for the company.
Jassy points out that AWS has significant experience in managing large-scale infrastructure and supply chain challenges. By leveraging these skills, AWS aims to improve its margins in the AI space over time, like how it did with its core cloud business.
The fifth perspective
By prioritising convenient delivery options and employing AI-powered tools, Amazon aims to further solidify its position in the retail industry. Additionally, AWS continues to be a significant growth driver, powered by increasing demand for cloud services and AI solutions. While AI has shown promise in cost reduction and efficiency improvements, the next frontier lies in developing AI systems capable of autonomous decision-making and action.
