Amazon.com, Inc. (AMZN) Earnings & Analysis

Latest quarter

Amazon reported Q3 FY2026 revenue of $201.9 billion, below the $202.1 billion consensus. Adjusted earnings per share of $1.89 also missed the $2.01 consensus. Revenue rose from $180.2 billion a year earlier, while diluted earnings per share fell from $1.95 to $1.89.

Amazon’s filing attributed AWS sales growth of 39% to increased customer usage, partly offset by pricing changes primarily associated with long-term contracts. North America sales rose 6% and International sales rose 5%, with the company citing increased unit sales, advertising and subscription services in both regions.

Amazon reported an operating margin of 13.9%, up from 9.67% a year earlier, while gross margin rose to 53.2% from 50.8%. Operating cash flow increased to $42.4 billion from $35.5 billion, according to the filing, while cash capital expenditures rose to $75.9 billion from $34.2 billion.

The company reported $28.1 billion in operating income, above its own Q3 guidance, while revenue came in within its guided range.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

Revenue came in within or above the company’s guide in 8 of the last 8 quarters it guided.

What management said on the call

CEO Andy Jassy said AWS growth reflected demand across cloud and AI services as Amazon added capacity. He reported a $578 billion backlog growing at a triple-digit rate year over year and said customers were using capacity almost as quickly as it was installed. CFO Brian Olsavsky said AWS AI revenue grew by triple digits year over year and identified Bedrock as a growth driver.

In the Q&A, Jassy said large blocks of capacity are reserved well in advance, giving Amazon visibility into customer demand for 2027 and 2028. He also said AWS was working to reduce the cost of AI inference, including through its custom chips. On a question about selling chips externally, he described a trade-off between recognizing revenue sooner from outside sales and earning revenue over a longer period by using chips in AWS. Amazon intends to start selling them externally in late 2027, he said.

Asked about AWS margins, Olsavsky attributed recent profitability to efficiency gains, capacity optimization, fixed-cost management and increased use of custom chips. He declined to provide an AWS margin guide and said investment levels, new-product margins and other factors would affect the outcome.

In retail, Olsavsky said better inventory placement, shorter shipping distances and package consolidation lowered Q3 cost to serve despite higher fuel and line-haul costs. Jassy said Amazon had moved Prime Day into Q2 for most countries, shifting sales and advertising revenue out of Q3; he expects advertising growth to return to the high teens in Q4. On competition from external shopping agents, he said few customers were shopping that way yet.

Olsavsky said Q3 cash capital spending primarily supported AWS and AI demand. For the quarter ahead, he said Amazon would continue to expense most Amazon Leo costs before beginning to capitalize certain costs next year.

Guidance

Olsavsky said Amazon now expects to begin capitalizing certain Amazon Leo costs in Q1 2027, later than he had predicted on earlier calls. Amazon had previously expected to begin in Q4 2026. Olsavsky said the company will therefore continue to expense the majority of Leo-related costs in Q4.