Prime And Alexa Scores, Amazon Stock Soars

Amazon’s investors got a bit of an early Christmas present this year, as a big beat on the Street earnings expectations for Q3 shot the stock price way up in after-hours trading.

Q3 is normally a heavy investment period for Amazon, leading into the always active Q4 holiday rush, so analysts were expecting smaller profits. But North American sales growth was strong, as were Amazon Web Services – and both were enough to blunt the Q3 spending blues, offering a nice lead-in to a strong outlook for the upcoming end of the holiday quarter and year.

By The Numbers

Revenue increased 34 percent year-on-year, thanks to $1.3 billion in sales from Whole Foods. Sales in North America increased 35 percent year-on-year to $25.4 billion during Q3.

Amazon Web Services posted another quarter as the firm’s cash engine, with a 42 percent jump in sales to $4.58 billion, topping analysts’ estimates of $4.5 billion in sales.

However, Amazon’s profit margins remain thin. Operating profits dipped 40 percent to $347 million, as investment ramped up. That brought the operating margin to 0.8 percent, the lowest it’s been since September 2014.

Amazon also noted that it has added 160,000 employees in the last three months (roughly 87,000 from Whole Foods) in preparation for the holiday season. Speaking of the holiday season, Amazon is feeling very bullish with guidance for the holiday quarter ranging from $56.0 billion to $60.5 billion, in line with estimates of $58.9 billion.

On the whole, investors liked what they saw, sending the stock price up 7 percent to over $1,040 a share.

The Highlight Reel

Though Amazon had no specific numbers to share on how many of its Echo devices it sold last quarter, the recent expansion of AI-powered smart speakers played a starring role in the earnings report.

“In the last month alone, we’ve launched five new Alexa-enabled devices, introduced Alexa in India, announced integration with BMW, surpassed 25,000 skills, integrated Alexa with Sonos speakers, taught Alexa to distinguish between two voices and more,” said Amazon CEO Jeff Bezos. “Because Alexa’s brain is in the AWS cloud, her new abilities are available to all Echo customers, not just those who buy a new device.”

Bezos also highlighted Amazon’s recent tie-in with Microsoft – which will allow Alexa and Cortana to interact – as well as its coming expansion into Japan and its voice calling features.

Bezos was also quick to point out that Echo and Alexa “is working.” In the closest thing we’ll get to a number, he said that Amazon customers have purchased tens of millions of Alexa-enabled devices and given Echo devices over 100,000 five-star reviews. He also remarked that active customers have increased by more than five times year over year, emphasizing that the Alexa experience “will continue to get even better” as developers and hardware makers flock to her ecosystem to develop new skills.

Amazon’s expansion into the physical retail world also merited some mention by the firm, for both its purchase of Whole Foods and commitment to “the vision of making high-quality, natural and organic food affordable for everyone.” Another highlight was Amazon’s 12 physical bookstore locations, with “more stores planned, including Walnut Creek, CA, Washington, D.C. and Austin, TX.”

The Five Killer Stats

$43.7 billion: Total Q3 sales (35 percent increase)

$26.4 billion: Net sales for online stores (22 percent increase)

$7.9 billion: Net sales for third-party seller services (up 40 percent year-on-year)

$2.4 billion: Subscription services (up 59 percent year-on-year)

53.6 percent: Portion of Amazon’s sales generated from North America in Q3