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Friday, October 27

Amazon's Job Cuts Finally Bite

Profits are back on track after the everything company cut 27,000 employees

After a year of reorganizing, Amazon has dialed in their efficiency as profits hit a near record in Q3. All this is an acceleration of the patterns analysts at Moby pointed out over the summer.

With the cost of their e-commerce business getting hammered by inflation for the past year, Amazon has been working hard to keep up with the likes of Meta and their year of efficiency. During last night's earnings call, Amazon demonstrated that their optimizations are finally bearing fruit. Amazon generated 60% more EPS than expected, hitting $0.98. They generated that level of profit from $143 billion in revenue, which also topped estimates. 

The foundation of this beat came from a minor recovery in core e commerce sales, which grew 10% YoY. More importantly, operating income surged over 300% as cost-cutting efforts really began to bite. Outside of Amazon's core business, advertising grew 26% and topped $12 billion in revenue while AWS kept losing ground by 'only' growing 12% to $28 billion in revenue. For context, the market rewarded Microsoft thanks to Azure's 29% and fled Alphabet this week due to Google Cloud's disappointing 22% growth.

Of course, AWS can afford slower growth because they're maintaining the pole position in the cloud business. More importantly, profitability at AWS has increased enough to assuage investors about the company potentially giving up market share to their rivals. The real headline here is Amazon getting their operating income and free cash flow back on track. 

It's one thing to optimize costs for a software company, but it's another entirely for the incredibly complex organization at the core of Amazon. The fact that revenue is still growing while costs get this under control is massive, especially with Amazon's international operations making sharp progress toward being cashflow positive even with all the forex pressure on US companies. Amazon has a lot more to prove with their AI ambitions, and the market is definitely discounting advertising revenue at the moment, but Amazon put enough pieces together to really convince the market that they can continue being a high-performer even as things become more difficult. Amazon stock rose 5% in early trading on the news. 

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