Amazon.com (AMZN) is jumping higher this morning (+10%) after reporting impressive Q3 earnings results last night. Before getting into the results, Amazon has been pretty busy in recent months, so let's recap a bit. It closed on its acquisition of Whole Foods on August 28, 2017. Upon closing, Whole Foods began offering lower prices on a selection of best-selling grocery staples across its stores, with more to come.
In addition, Amazon introduced three new Echo devices: the all-new Echo ($99.99), featuring a new design, improved sound, a lower price, and a choice of colors to personalize your device; Echo Plus ($149.99) with a built-in smart home hub so customers can easily set up and control their smart home devices; and Echo Spot ($129.99), a compact Echo with a screen so you can see the weather, get the news with a video flash briefing, view lyrics with Amazon Music, watch a camera monitor, browse and listen to Audible, and more.
Amazon also introduced the all-new Fire TV with 4K Ultra HD, High Dynamic Range, and Alexa Voice Remote for $69.99. Amazon launched Alexa far-field voice control on Fire TV. Customers can now pair an Echo device with a Fire TV and simply ask Alexa to play a favorite show, launch an app, or control playback — all without having to pick up the remote. Amazon announced that you can now call anyone with Alexa with a new calling feature that offers free outbound calling to any number from Echo devices, and the all-new Echo Connect which brings the convenience of hands-free inbound and outbound calling to your home phone.
Amazon also introduced Amazon Key, a new service exclusively for Prime members that enables in-home delivery and secure home access for guests and service appointments. Amazon Key works with Amazon Cloud Cam, the company's first home security offering. Cloud Cam is an intelligent indoor security camera featuring 1080p full HD resolution, night vision, two-way audio, a wide viewing angle, and clips from the last 24 hours for $119.99.
Let's take a quick look at the numbers. EPS came in at a robust $0.52 profit while a small loss was expected by the market. Revenue rose 33.7% year/year to $43.74 bln, which was well above prior guidance of $39.25-41.75 bln. Operating income fell 40% YoY to $347 mln, but that was above the high end of prior guidance of $(400)-300 mln. Looking ahead to the all-important Q4 period, AMZN is expecting revenue of $56.0-60.5 bln and operating income between $300 mln and $1.65 bln, which is a pretty wide range.
Breaking down the segments, AMZN reports earnings using three main business segments: North America, International, and Amazon Web Services (AWS). In the North America segment, revenue grew 35% to $25.45 billion. International revenue grew 29% to $13.71 billion. AWS revenue grew 42% to $4.58 billion.
In sum, this was an impressive quarter for AMZN. After a miss in Q2, the company posted impressive EPS upside in Q3. Also, from a broader perspective, we get the sense that investors are impressed that, despite its already large size, Amazon is still able to post impressive growth numbers.
There are still some skeptics out there that think the Whole Foods acquisition was not a smart move, but AMZN seems to know what it's doing. Looking ahead, there are reports that AMZN is looking to get more into the prescription drug delivery market, which does make a lot of sense. Finally, the outlook for Q4 looks quite good. The Q4 report is very important because it encompasses the all-important holiday season. In fact, about a third of annual revenue is generated in Q4.