In 1 phrase, right here's why the Amazon share worth is rising after Q3 earnings

The Amazon (NASDAQ:AMZN) share worth is rising after the corporate’s earnings report for the third quarter of 2024. There’s quite a bit happening, however I believe it comes down to 1 factor. 

Progress. For a inventory like Amazon to be a viable funding, the enterprise wants to search out methods of continuous to extend its earnings and free money flows – and it has been doing precisely this.

Revenues

Amazon reported income development of 11% for the quarter. By itself, that’s not spectacular – over the past 10 years, the corporate has persistently managed to develop its gross sales at the next fee.

Amazon annual income development 2014-24

Not all gross sales are the identical although. Particularly in terms of a enterprise like Amazon, it’s price taking a more in-depth take a look at the place that development’s coming from. 

Importantly, essentially the most spectacular good points got here from AWS and the agency’s promoting providers division. Against this, development within the on-line and bodily retail operation was extra modest. 

Supply: Amazon Q3 2024 Earnings Launch

That’s necessary, as a result of the retail components of the enterprise have decrease margins. So fast development within the different operations means earnings improve even sooner.

Earnings and free money movement

So it transpired – that 11% income development took Amazon’s earnings per share to $1.43, up from $0.94 within the third quarter of 2023. That’s a rise of 52%. 

The corporate’s free money flows nevertheless have been extra difficult. Amazon prefers to state its money flows every quarter based mostly on the earlier 12 months. 

That’s advantageous, however buyers want to remember what they’re seeing. For instance, the agency reported 123% development in free money flows – which is correct on a 12-month foundation.

Supply: Amazon Q3 2024 Webcast Slides

Most of that wasn’t from Q3 although. In the latest quarter, Amazon’s working money flows grew slower than its capital expenditures, so the 12-month determine was down from Q2.

Inventory-based compensation

I’m not notably nervous about this. Amazon’s seeking to optimise totally free money flows over the long run, so the 12-month comparability continues to be fascinating – and inspiring. 

As an Amazon shareholder, the factor I used to be most concerned with was stock-based compensation. That is the quantity the corporate pays its staff utilizing fairness. 

Doing this has the impact of boosting the excellent share rely, diluting my stake within the enterprise (except I purchase extra shares). The information on this nevertheless was encouraging.

Supply: Amazon Q3 2024 Webcast Slides

Amazon’s made some extent of attempting to convey its share rely below management. And I used to be happy to see the rise within the variety of shares excellent was low in comparison with earlier years.

Progress

I believe there’s an necessary lesson right here for buyers. It’s that earnings development doesn’t have to return from rising revenues. 

Increased gross sales generally is a path to rising earnings, however widening margins might be simply as efficient. Since I believe there’s extra to return from Amazon on each fronts, it’s staying on my purchase checklist.