6 Key Takeaways From Amazon's Q3 Earnings

Amazon.com, Inc. AMZN reported Q3 results with robust unit, revenue and gross profit growth, despite tougher comps.

Bob Peck of SunTrust Robinson Humphrey maintained a Hold rating on the company, with a price target of $850.

Margin Pressure

Peck mentioned that the Q4 margin guidance was below expectations and “at the mid-point would represent the first operating margin decline in over 2 years as the company invests heavily in video, fulfillment/ Prime, grocery, India and other initiatives.”

While investments in the company’s core customer proposition and stickiness seem prudent, the analyst believes there could be more near-term margin pressure that investors might discount.

Key Takeaways

According to Peck, the key takeaways from Amazon’s Q3 results include:

1. Unit growth remained strong at 28 percent year-on-year, in line with Q2, driven by expansion in the product range and footprint of the Prime ecosystem.
2. Third party sellers now account for 50 percent of unit sales, and the success of the FBA programs continues to drive growth.
3. Revenue grew 29 percent year-on-year during Q3. More importantly, gross margins, which Peck believes is a better indicator of top line, grew 33 percent year-on-year, against a backdrop of tougher comps due to Prime Day.
4. International EGM also posted robust growth at 36 percent year-on-year, ex-FX, with North America EGM growing 30 percent year-on-year, decelerating only 2 percent.
5. Top line at Amazon Web Services grew 55 percent year-on-year, representing a modest quarter-on-quarter decline, although exceeding revenues of $3 billion and operating profit of $1 billion for the first time, with 32 percent margins.
6. CSOI margins were up 20bps year-on-year, driven by AWS profits, which were 3x retail in Q3.