Amazon Jumps On Record AWS Profit Margin, Solid Holiday Quarter Guidance

Hedge funds are being selective ahead of Amazon's quarterly earnings, with some covering their short positions due to the company's strong capital allocation and investors' "buy-the-dip" mentality. The bull case for Amazon centers around prospects for faster gross merchandise value growth, margin expansion, and new high-margin revenue streams. Investors are focused on Amazon's payouts through its investment cycle, including AWS growth, ecommerce, and NBA cash. The most important things to watch for in the earnings report are directional commentary around AWS growth, retail margin improvement, and progress with fulfillment regionalization. Amazon reported Q3 earnings that beat estimates, with EPS of $1.43 and net sales of $158.88 billion, up 11% year-over-year. The company's online stores, physical stores, and subscription services all saw strong growth, while AWS revenue grew 19% to $27.45 billion. Operating income was $17.41 billion, up 56% year-over-year, with an operating margin of 11%, an all-time high. The company's guidance for Q4 was strong, with revenue expected to grow between 7% and 11% and operating income expected to be between $16 billion and $20 billion. Amazon's stock surged 4% on the day following the solid earnings report.