Amazon's Record AWS Profit Margin and Solid Holiday Quarter Guidance
Before the earnings announcement, UBS had Apple sentiment at a 6/10. Despite the excitement around AI following Apple's WWDC event over the summer, UBS analyst David Vogt's checks indicated that iPhone unit sell-through in the September quarter was essentially flat year over year at around 46 million units. This is in contrast to global sell-through, which was up 2% year over year. Vogt anticipated September Quarter results largely in line with his forecast of $94 bn/$158 bn, with potential upside driven by iPad sales and flat iPhone units of 46 million.
Apple's iPhone Sales and AI Impact
Despite several observations that AI is not boosting iPhone sales, investors continue to give Apple the benefit of the doubt for a successful iPhone 16 launch. However, this optimism is not overly supported based on checks/sell-through. Many are waiting for further confirmation until the rollout of Apple Intelligence. David anticipates balanced commentary regarding December Quarter iPhone demand. Valuation is a common pushback, but absent a significant iPhone miss, UBS is not sure the Q3 results will be much of a catalyst either way for the stock.
Apple's Q3 Report
Apple reported the following for Q3:
- EPS $1.43 vs. $1.26 q/q, beating estimate $1.16
- Net sales $158.88 billion, +11% y/y, beating estimates $157.29 billion
- Online stores net sales $61.41 billion, +7.2% y/y, beating estimate $59.64 billion
- Physical Stores net sales $5.23 billion, +5.4% y/y, beating estimate $5.17 billion
- Subscription Services net sales $11.28 billion, +11% y/y, beating estimate $11.17 billion
- North America net sales $95.54 billion, +8.7% y/y, beating estimate $95.22 billion
- International net sales $35.89 billion, +12% y/y, beating estimate $34.55 billion
- Third-Party Seller Services net sales $37.86 billion, +10% y/y, missing estimate $38.22 billion
- Amazon Web Services net sales $27.45 billion, +19% y/y, missing estimate $27.49 billion
Operating Results and Future Projections
In terms of operating results, the company reported an operating income of $17.41 billion, a 56% increase year over year, beating estimates of $14.75 billion. The operating margin was 11% vs. 7.8% y/y, beating estimates of 9.34%.
Looking ahead, the company projected profit and revenue in the current quarter that exceeded analysts’ estimates, indicating optimism for a strong holiday shopping season. Revenues for Q4 are expected to be between $181.5 billion and $188.5 billion, with operating income expected to be between $16 billion and $20 billion.
Stock Market Response
In response to the solid results, which saw revenues beat and guidance in line, despite a mixed report from AWS, the stock surged, and was last trading around $195, up about 4% on the day, and basically where it was to close Wednesday.
Bottom Line
Despite some mixed results, Amazon's record AWS profit margin and solid holiday quarter guidance have led to a positive response in the stock market. The company's projections for the current quarter also indicate optimism for a strong holiday shopping season. What are your thoughts on these developments? Share this article with your friends and let us know your thoughts. Don't forget to sign up for the Daily Briefing, which is everyday at 6pm.
