Amazon Q3 - Strong sales in cloud, advertising and retail.

Last week, Amazon released market-beating numbers and its share price rose smartly, one of the only bright spots for the week. Amazon has suffered from a Covid hangover after expanding its distribution network too quickly during the global lockdown, when online orders surged. Thankfully, they are now through that adjustment, costs have normalised and the business has been right-sized.

Amazon had revenue of $143.1 billion, up 12.6% year-on-year, and posted its second highest ever quarterly net income of $9.9 billion, up from $2.9 billion a year ago. Impressive!

The web-hosting division AWS is still the standout part of the business. It generates $23.1 billion in revenue and $7 billion in operating profit. The entire e-tail business, by comparison, has revenue of $120 billion and only makes an operating profit of $4.2 billion. The international e-tail business had revenue of $32 billion and losses of $95 million. Now you can understand why Takealot has struggled to make money. As the international business scales, we expect the losses to swing to profits.

Amazon's dominant position makes it hard for its competitors. For example, new entrants to the market can't sell a Prime equivalent to make their business profitable. If you strip out the $12 billion received from advertising and the $10 billion received from Prime membership, Amazon's e-tail division would be loss making.

Amazon's advertising revenue rose by 25% from a year ago. This is a huge growth driver for the company because it's a very high margin business. It's expected to continue growing, and a big chunk of those sales will go directly to the bottom line.

Last year was rough for Amazon shareholders. These results have stabilised the ship, and we expect the share price to recover all of the 2022 losses. The all-time share price high is around $186 per share and it's now at $133. The sky is the limit.