AMAZON.COM on Thursday forecast third-quarter sales above market estimates, but failed to live up to lofty expectations for its Amazon Web Services cloud computing unit after rivals handily beat expectations.
Shares fell by more than 3 per cent in after-hours trading after finishing regular trading up 1.7 per cent to US$234.11. Both Google-parent Alphabet and Microsoft posted big cloud computing revenue gains this month.
AWS profit margins also contracted. Amazon said they were 32.9 per cent in the second quarter, down from 39.5 per cent in this year’s first quarter and 35.5 per cent a year ago. The second-quarter margin results were at their lowest level since the final quarter of 2023.
AWS, the cloud unit, reported a 17.5 per cent increase in revenue to US$30.9 billion, edging past expectations of US$30.77 billion. By comparison, sales for Microsoft’s Azure rose 39 per cent and Google Cloud gained 32 per cent.
After competitors’ strong showing, “AWS is lingering at 17 per cent growth,” said Gil Luria, a D.A. Davidson analyst. “That is very disappointing, even to the point where if Microsoft’s Azure continues to grow at these rates, it may overtake AWS as the largest cloud provider by the end of next year.”
Amazon expects total net sales to be between US$174.0 billion and US$179.5 billion in the third quarter, compared with analysts’ average estimate of US$173.08 billion, according to data compiled by LSEG.
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The range for operating income in the current quarter was also light. Amazon forecast between US$15.5 billion and US$20.5 billion, compared with expectations of US$19.45 billion.
Both Microsoft and Alphabet cited massive demand for their cloud computing services to boost their already huge capital spending, but also noted they still faced capacity constraints that limited their ability to meet demand.
AWS represents a small part of Amazon‘s total revenue, but it is a key driver of profits, typically accounting for about 60 per cent of Amazon‘s overall operating income.
While Amazon has poured billions of dollars into AI infrastructure, analysts have said the lack of a strong AI model from AWS is causing concerns that the company could be trailing rivals in AI development.
The AWS results are “alarming,” said Dave Wagner, portfolio manager for Aptus Capital Advisers, which holds Amazon shares. “Amazon is an operating leverage story and they had to be able to grow, at least relative to costs. And they haven’t done it.”
The Seattle-based retailer posted online store sales of US$61.5 billion, an 11 per cent gain. Advertising sales, a fast-growing segment for Amazon, were up 23 per cent to US$15.7 billion.
Investors have been watching Amazon‘s e-commerce unit for any signs that tariff-related uncertainty has dashed consumer confidence. US data showed consumer spending rose moderately in June.
President Donald Trump’s tariffs have dampened the US retail industry, leaving major retailers and consumer goods companies scrambling to protect their margins or resort to price increases, all while ensuring consumer demand remains intact.
Trump has said the levies will bring manufacturing power and jobs back to the US.
Analysts had said Amazon‘s focus on low prices, quick delivery and the sheer number of product categories helped cement its position as the No. 1 e-commerce retailer for US consumers, giving it an edge over rivals.
Amazon has said it was pushing suppliers to pull forward inventories to ensure supply and keep prices as low as possible. Still, prices for goods made in China and sold on Amazon.com have been rising faster than overall inflation, Reuters reported last month.
The company has been trimming jobs in its corporate offices, including at its AWS, books, devices and podcasting units. Its efforts were showing results: headcount fell by 14,000 workers from this year’s first quarter, bringing the total to 1.46 million. REUTERS
