Amazon (AMZN)

Cloud computing and online retail behemoth Amazon (NASDAQ:AMZN) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 13.4% year on year to $180.2 billion. The company expects next quarter’s revenue to be around $209.5 billion, close to analysts’ estimates. Its GAAP profit of $1.95 per share was 25.2% above analysts’ consensus estimates.

Key Topics & Areas Of Debate

For many of Amazon’s big tech peers, the key areas of debate center around revenue growth. Amazon is different, as the focus is on profitable growth due to its consistent reinvestment strategy and the structurally lower margins seen in its e-commerce business, where it must hold physical inventory.

Can Amazon leverage its vast logistics investments of the last two-plus decades while automating more of its operations and leaning into advertising to increase profitability? If so, its North America segment, which consists of its consumer-facing businesses, could see double-digit operating margins in the next few years (it was 11% for the last 12 months).

A more profitable North America segment combined with a faster-growing and structurally higher-margin Amazon Web Services (AWS) could mean earnings power that is orders of magnitude larger. Higher earnings typically lead to higher stock prices.

Despite its scale and dominance, Amazon doesn’t operate in a vacuum. Walmart (NYSE:WMT) and Target (NYSE:TGT) - with their improving omnichannel footprints – are competitors to Amazon’s e-commerce and Whole Foods businesses. And while it has a first-mover advantage in the public cloud services market, Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) are working hard to catch up.

Founded by Jeff Bezos after quitting his stock-picking job at D.E. Shaw, Amazon (NASDAQ:AMZN) is the world’s largest online retailer and provider of cloud computing services.

Amazon shows that fast growth and massive scale can coexist despite conventional wisdom. The company’s revenue base of $347.9 billion five years ago has nearly doubled to $691.3 billion in the last year, translating into an exceptional 14.7% annualized growth rate.

Over the same period, Amazon’s big tech peers Alphabet, Microsoft, and Apple put up annualized growth rates of 17.6%, 14.8%, and 8.4%, respectively. This is an important consideration because investors often use the comparisons as a starting point for their valuations. When adjusting for these benchmarks, we think Amazon’s price is fair.

Long-term growth reigns supreme in fundamentals, but for big tech companies, a half-decade historical view may miss emerging trends in AI. Amazon’s annualized revenue growth of 11.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Amazon reported year-on-year revenue growth of 13.4%, and its $180.2 billion of revenue exceeded Wall Street’s estimates by 1.2%. Company management is currently guiding for a 11.6% year-on-year increase in sales next quarter. Looking further ahead, sell-side This projection is healthy for a company of its scale and illustrates the market sees some success for its newer products.

Many investors understand that Amazon’s e-commerce business caps its gross margin, which averaged 46.3% over the last five years. The company lags behind its pure-play tech peers because it sells many commoditized goods online where it must acquire and hold physical inventory.

What the market debates, however, is where Amazon’s long-term operating profitability could ultimately settle. Sure, its five-year margin of 7.2% was weak, but it rose by 4.8 percentage points thanks to leverage on the fixed costs in its consumer-facing businesses and the highly profitable AWS segment becoming a larger portion of its revenue. Our question is if Amazon’s momentum can continue and result in a mid-to-high teen percentage margin somewhere down the line.

The company’s North America segment holds the keys to this answer. Throughout the years, Amazon has made huge investments to not only attract hoards of customers into its ecosystem but also retain them. Some areas of focus in this effort included its unmatched delivery network and video streaming content.

Bulls will argue that Amazon can afford to ease up and begin riding its investments of the last two-plus decades. Wall Street seems to agree somewhat and is projecting its trailing 12-month operating margin of 11% to reach 12.2% in the coming year. Combined with its performance over the last few years, this suggests Amazon’s long-term profitability could go much higher, potentially leading to earnings and a stock price that follows.

Revenue: Scale and Dominance

The North America segment operates where Amazon’s fulfillment network is densest: the U.S., Canada, and Mexico. While anchored by the company’s flagship e-commerce business, it also encompasses advertising, third-party seller support services, and Prime memberships.

Specifically, we ask if Amazon can continue scaling e-commerce with its current infrastructure, and whether its emerging, higher-margin businesses like advertising will keep outpacing the broader segment.

All that said, North America’s unprecedented scale makes it the largest part of Amazon’s business at 60% of total revenue. It solidified its market leadership over the last five years by growing its sales at a solid 14.1% annualized rate.

On a two-year basis, growth was understandably slower at 10.3%, but performance was still good as it worked off a whopping $340.7 billion revenue base. Advertising paved the way for this print as it grew at a higher 21.4%.

Since 2023, advertising revenue rose from 12.9% of North America’s sales to 15.6%. Its growth beat Google Search’s 12.7% annualized rate, showing it’s taking share from the incumbent. Bulls would argue Amazon is winning because purchasing intent is higher when searching for products on its website versus Google’s. Just mind that it’s harder for Google Search to grow quickly because it’s working off a much higher trailing 12-month revenue base of $215.5 billion (compared to $64.61 billion for Amazon’s advertising business).

Profitability: Optimizing For Efficiency?

The most structural factor limiting Amazon’s margins is its physical operations, a double-edged sword. On one hand, its e-commerce business is the bread-and-butter that paves the way for other revenue streams such as advertising, and its extensive logistics network is a durable advantage that is nearly impossible to replicate. On the other hand, it can never achieve margins like the asset-lite Google Search and Microsoft Office.

This dynamic catalyzes the most important debate for Amazon: will North America ever dial back its investments to improve its margin structure, or must it keep investing to meet ever-higher consumer expectations and hold the competition at bay?

Bulls are in luck as the segment’s annual operating margin rocketed from 2.4% two years ago to 6.6% in the last year. Furthermore, its revenue growth shows the expansion was driven by increased utilization of its existing infrastructure. The cherry on top was its mix shift toward advertising. This is certainly evidence that Amazon can achieve higher long-term margins.

This quarter, North America recorded a 4.5% operating margin, down from 5.9% in the same quarter last year. Though shorter-term, this data point defies its two-year trend and is not supportive of a more profitable Amazon.

Revenue: The First-Mover Advantage

Almost all modern internet applications are built on public cloud infrastructure, and Amazon Web Services (AWS) was the first mover. As a result, it has reaped the scale and vendor lock-in benefits that materialize into sky-high margins. Now, it carries Amazon’s profitability and is the war chest enabling its investments.

AWS is the leader in this market today with its run-rate revenue (current quarter’s sales times four) of around $150 billion. However, Azure (a subset of Microsoft’s Intelligent Cloud segment) is a fast-growing competitor on pace to generate roughly $95 billion while Google Cloud Platform is a distant third at $60 billion. Even though AWS's growth is the lowest of the three, as seen in the chart below, it's still solid given the magnitude of its scale.

Over the last five years, the segment’s revenue grew at a robust clip, clocking in at 23.4% annualized. This performance was better than its consolidated revenue and boosted the company’s overall unit economics. Sales have recently decelerated to 17.8% annual growth over the last two years, though this isn’t concerning because demand is still high.

With its growth, AWS has increased from 12.2% of total revenue five years ago to 17.6% today. Its share should continue expanding as it’s forecasted to grow faster than the rest of the business from here on out.

Profitability: The Gold Mine

As AWS becomes a bigger part of Amazon, company-wide profitability should also rise thanks to its software-like margins. The segment is also one to monitor because its profits are a major determinant of future investment firepower.

AWS’s annual operating margin catapulted from 25.8% in 2023 to 35.9% in the last year. This performance along with the higher efficiency in North America contributed to Amazon’s recent margin increases.

The latest quarter saw AWS take a small step back as its 34.6% margin was below its trailing 12-month profitability. We wouldn’t jump to any conclusions based on one quarter, but AWS’s margin was lower than its trailing 12-month result. If its profitability maxes out while the North America segment fails to gain operating leverage, Amazon’s long-term margins could suffer.

We track the long-term change in earnings per share (EPS) alongside revenue and margins because it shows whether a company’s growth is profitable and what else affects shareholder returns.

Amazon’s EPS grew at an astounding 32.9% compounded annual growth rate over the last five years, higher than its 14.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Amazon’s earnings to better understand the drivers of its performance. As we mentioned earlier, Amazon’s operating declined this quarter but expanded by 4.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Amazon, its two-year annual EPS growth of 91.7% was higher than its five-year trend. We love it when earnings growth accelerates, but a caveat is that this particular figure was helped by a low EPS starting point as the world re-opened post-COVID and people spent less money on e-commerce purchases and more on travel and experiences.

In Q3, Amazon reported EPS of $1.95, up from $1.43 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Amazon’s full-year EPS of $7.08 to grow 1.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Amazon has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, lousy for a consumer internet business.

Taking a step back, an encouraging sign is that Amazon’s margin expanded by 1.5 percentage points over the last five years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Amazon broke even from a free cash flow perspective in Q3. The company’s cash profitability regressed as it was 2.7 percentage points lower than in the same quarter last year, but we wouldn’t read too much into it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to quarter-to-quarter swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Amazon’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 2% for the last 12 months will increase to 6.2%, giving it more flexibility for investments and share buybacks (Amazon has historically refrained from dividends).

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Amazon’s five-year average ROIC was 18.2%, higher than most consumer internet businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Amazon’s ROIC has stayed the same over the last few years. Rising returns would be ideal, but this is still a noteworthy feat since they're already high.

Amazon reported $94.2 billion of cash and $135.4 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $158.4 billion of EBITDA over the last 12 months, we view Amazon’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $1.21 billion of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We also happy that Amazon's revenue narrowly outperformed Wall Street’s estimates, as Amazon Web Services and North America all beat. Investors are especially cheering the fact that AWS revenue accelerated growth accelerated to 20, a level not seen since 2022 when that business unit was much smaller. Operating profit missed, but excluding two one-time charges, it would have beaten, and the market is understanding this. Overall, this print featured some key positives. The stock traded up 9.6% to $244.30 immediately after reporting.

Updated: December 4, 2025 at 9:01 PM EST

Are you wondering whether to buy Amazon or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are things to like about Amazon. First off, its superb long-term revenue growth driven by AWS has aided margins and indicates that even more companies are leveraging its cloud computing offerings. And while its low free cash flow margin makes investors question whether it will ever harvest profits or keep pushing them to the future, its exceptional two-year revenue growth shows its adjacent products, like advertising, resonate with customers. On top of that, its projected revenue growth for the next year implies its recent momentum will continue.

Amazon’s price-to-earnings ratio based on the next 12 months is 31.3x. When scanning the consumer internet space, Amazon trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $295.03 on the company (compared to the current share price of $229.03), implying they see 28.8% upside in buying Amazon in the short term.