AWS Powers Amazon (AMZN) to Record Profits as Wall Street Takes Notice

Amazon’s (AMZN) dominant market position continues to draw intense interest from financial professionals, with our TrackStar data showing the company leading search volume among e-commerce players. 

While Alibaba (BABA) maintained strong institutional interest, other competitors like Etsy (ETSY), JD.com (JD), and MercadoLibre (MELI) saw significantly lower search activity from financial pros.

The heightened institutional interest comes as Amazon delivered another strong quarter, with AWS leading the charge as cloud revenue surged 19% year-over-year to $27.5 billion and operating income jumping an impressive 50% to $10.4 billion. 

The company’s ability to expand margins while maintaining double-digit growth has caught the attention of professional investors.

But the real story lies deeper than these headline numbers. As Amazon transforms from a pure e-commerce player into a diversified technology powerhouse, our analysis reveals why professional investors are increasingly viewing it as a different kind of company altogether.

Amazon’s Business

What started as an online bookstore in 1994 has evolved into a global technology giant operating the world’s largest e-commerce platform, leading cloud computing service, and growing advertising business.

The company leverages its vast infrastructure and customer base to deliver products and services across retail, cloud computing, digital streaming, artificial intelligence, and advertising. With over 1.5 million employees and operations in over 60 countries, Amazon’s scale and reach is unmatched.

Amazon segments its business into the following areas:

• North America (60% of total revenues)
• International (23% of total revenues)
• AWS (17% of total revenues)

The third quarter showed broad-based strength with revenue growing 11% year-over-year to $158.9 billion while operating income surged 56% to $17.4 billion.

The company’s artificial intelligence initiatives expanded with new features like Rufus shopping assistant and AI Shopping Guides, while AWS launched new foundation models and partnerships with AI leaders Anthropic and Databricks.

Amazon kicked off the holiday season with record Prime Big Deal Days sales and is staffing up with 250,000 seasonal workers to handle expected strong demand. 

The company continues investing in logistics capabilities and expanding selection through new premium brand partnerships.

Financials

Source: Stock Analysis

Amazon’s financial profile has strengthened considerably, with operating cash flow for the trailing twelve months reaching $112.7 billion – more than quadruple closest competitor Alibaba’s $23.5 billion. Free cash flow more than doubled to $47.7 billion.

Operating margins expanded to 9.77% TTM from 7.09% a year ago, though still trailing Alibaba’s 14.03% and Etsy’s 13.16%. AWS’s industry-leading 38.1% margins in Q3 helped offset lower retail margins. 

The international segment achieved profitability, marking all three segments as profitable this quarter.

With $78.7 billion in cash, Amazon maintains significant financial flexibility for continued investments in growth initiatives.

Valuation

Source: Seeking Alpha

The premium valuation Amazon commands over its e-commerce peers tells an important story about market expectations. 

Trading at 39x forward earnings – more than double Alibaba’s multiple – Amazon’s valuation reflects its unique position straddling both retail and technology sectors. 

This premium appears justified when examining the company’s execution: while Alibaba and Etsy struggle with single-digit growth, Amazon continues delivering double-digit expansion across key metrics.

Growth

Source: Seeking Alpha

Amazon’s growth trajectory stands in stark contrast to its e-commerce rivals. 

While Alibaba and Etsy struggled with single-digit revenue growth, Amazon delivered a robust 12% top-line expansion. 

The bottom-line performance gap is even more striking – Amazon’s EBITDA surged 50% year-over-year, dwarfing its competitors’ 2% growth. 

Over three years, the divergence becomes stark: Amazon grew net income at 24% annually while both Alibaba and Etsy saw profits decline by more than 18%.

Management’s Q4 guidance of 7-11% revenue growth, coupled with AWS’s accelerating momentum and expanding margins, suggests Amazon isn’t just outperforming its peers – it’s playing an entirely different game.

Profitability

Source: Seeking Alpha

Amazon’s profitability metrics reveal its evolving business mix. 

While its 48.4% gross margin trails Etsy’s marketplace-focused model, it substantially exceeds Alibaba’s 37.9%. 

The real story emerges in capital efficiency – Amazon’s 22.6% return on equity dramatically outperforms Alibaba’s 5.7%, demonstrating superior ability to generate profits from shareholder capital.

The company’s EBITDA margin now matches Alibaba’s, erasing what was historically a significant gap, while its return on total capital approaches Etsy’s levels despite operating at many times the scale. 

This convergence of profitability metrics with pure-play e-commerce companies, while maintaining superior growth rates, validates Amazon’s hybrid retail-technology strategy.

Our Opinion 9/10

We gave Amazon a 9/10 rating based on its industry-leading position, superior growth metrics versus peers, expanding margins, and strong institutional interest, as evidenced by our TrackStar data. 

The company’s diverse revenue streams, AWS dominance, and improving profitability set it apart from e-commerce competitors. 

While macro headwinds and cloud competition remain risks, Amazon’s execution and financial strength position it well for continued outperformance.

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