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Amazon (AMZN +7%) is making a strong move today after reporting a sizeable EPS beat for Q3 last night. This was its largest EPS upside quarter since 3Q23. Also, Q3 operating income jumped 56% yr/yr to $17.41 bln, well above the high end of prior guidance of $11.5-15.0 bln. Revenue rose a healthy 11% yr/yr to $158.88 bln, which also was above the high end of prior guidance of $154.00-158.50 bln.

• As we said in our preview, we had some concerns about the Q4 guidance because this will be a compressed holiday season with the fewest number of shipping days between Black Friday and Christmas Eve since 2019. However, AMZN guided total revenue in-line at $181.50-188.50 bln. It also guided to healthy Q4 operating income of $16-20 bln. AMZN says it's encouraged by the start of the holiday season.
• Let's start with the Stores segment. AMZN saw growth of 9% in North America and 12% in the international segment. At a time when consumers are being careful about how much they spend, AMZN says it continues to lower prices and ship even more quickly. AMZN sees this resonating with customers as its unit growth continues to be strong and even outpaces its revenue growth. Prime Day in July was its largest and most successful Prime Day.
• Turning to AWS, segment sales increased 19% yr/yr (+19% CC) to $27.5 bln. That matched the brisk pace we saw in Q2 and what stands out is that sales growth has been accelerating even as this segment gets larger: +19% CC in Q2, +17% CC in Q1, and +13% CC in Q4. AMZN said it has seen significant reacceleration of AWS growth over the last four quarters. AMZN sees more enterprises growing their footprint in the cloud, as evidenced by recent wins.
• AMZN says companies are focused on new efforts again, spending energy on modernizing their infrastructure from on-premises to the cloud. In the last 18 months, AWS has released nearly twice as many machine learning and GenAI features as the other leading cloud providers combined. Its AI business is now a multi-billion-dollar revenue run rate business that continues to grow at triple digits. It is growing more than 3x faster at this stage of its evolution than AWS itself grew.
• Turning to Advertising Services, segment revenue grew +19% CC to $14.33 bln. This was a bit lower than recent quarters: +20% CC in Q2, +24% CC in Q1, +26% in Q4, +25% CC in Q3, +22% CC in Q2. However, this segment's base is getting larger. Advertising remains an important contributor to profitability in the North America and International segments. AMZN sees many opportunities to further expand its ads offering.

Overall, investors like what they see in AMZN's Q3 report. There is really nothing to complain about, maybe some slight deceleration in its ads segment but that is nitpicking. Stores growth was solid and AWS was very impressive. AMZN also reported big upside with its EPS and operating income, so profitability metrics were very good in Q3. Also, AMZN put our concerns about a condensed holiday season to rest.