Amazon misses revenue and net income expectations; shares plunge 7%

[Financial News, New York — Correspondent Lee Byung-chul] The U.S.'s largest e-commerce company, Amazon, reported massive cash outflows from increased investment in AI infrastructure and results that fell short of market expectations, sending its shares down more than 7% in after-hours trading. Its cloud business, Amazon Web Services (AWS), posted its fastest growth in about five years, but hefty AI investment costs are weighing on cash flow, while its core e-commerce and advertising businesses are also struggling, heightening investor concerns.
Amazon said it recorded revenue of $201.94 billion and earnings per share (EPS) of $1.89 in its third-quarter results for this year, announced on the 29th (local time). Both figures fell short of Wall Street estimates compiled by financial data provider LSEG: revenue of $202.31 billion and EPS of $1.96.
In particular, worsening cash flow due to increased investment in AI infrastructure dampened investor sentiment. Amazon said it had a free cash flow (FCF) deficit of $42.4 billion over the 12 months through the end of September. Cash outflows were up 386% from the same period a year earlier, and the company recorded negative free cash flow for a second consecutive quarter.
In the previous quarter, cash outflows over the preceding 12 months totaled $7.6 billion. That means they grew more than fivefold in just three months. Amazon said increased acquisitions of real estate, facilities and equipment for AI investment were a major cause of the deterioration in cash flow.
Amazon also reaffirmed its previously announced plan to keep annual capital spending at $220 billion this year. Its short-term ability to generate cash is being significantly weakened as it pours massive sums into AI data centers and related infrastructure.
This contrasts with recent investment moves by other big tech companies. Microsoft this week lowered its capital spending forecast for this year from $175 billion to $170 billion. Google parent Alphabet Inc. maintained its capital spending plan of $195 billion to $205 billion. As competition to invest in AI infrastructure continues, some companies are also moving to moderate the pace of investment growth.
Amazon's cloud business, however, continued to post strong growth. AWS revenue in the third quarter surged 39% year over year to $45.98 billion. It topped the market estimate of $45.29 billion and marked the fastest growth rate in about five years.
Amazon CEO Andy Jassy stressed in the earnings announcement that “investments in AWS’s capabilities and infrastructure are paying off.” He projected that AWS revenue growth would exceed 40% next year and in 2028.
Despite AWS's strong results, overall performance fell short of market expectations. Revenue from Amazon's largest business segment, e-commerce, rose just 2% year over year to $68.47 billion. That was below the market estimate of $69.68 billion.
The advertising business also underperformed. Third-quarter advertising revenue was $19.64 billion, short of the market estimate of $20.82 billion. Thus, despite the cloud business's strong growth, weakness in e-commerce and advertising weighed on overall results.
Net income fell to $20.69 billion from $21.19 billion in the same period last year. Amazon said a major reason for the decline in net income this year was that last year's third-quarter results included a $9.5 billion pretax valuation gain on its investment in AI startup Anthropic.
The outlook for the year-end holiday shopping season also failed to provide clear reassurance to the market. Amazon forecast fourth-quarter revenue of $240 billion to $247 billion. The market estimate of $244.5 billion falls within that range, but concerns about slowing growth in the e-commerce business remain.
Amazon shares closed down 4.3% at $243.79 in regular trading that day, then fell more than 7% further in after-hours trading following the earnings announcement.




[email protected] Correspondent Lee Byung-chul Reporter