Citi: Amazon’s third quarter: AWS growth accelerates, retail margins improve, and fourth-quarter profit guidance is cautious

Which third-quarter results exceeded expectations?

Amazon’s revenue in the third quarter of 2026 was 201.9 billion dollars, up 12% year over year, or 13% excluding currency effects. It matched market consensus and was within the company’s guidance range of 197 billion to 202 billion dollars.
Operating profit was 28.1 billion dollars, approximately 7% above market consensus and approximately 6% above the company’s guidance ceiling of 26.5 billion dollars, with contributions from both AWS and North American retail. However, earnings per share under US GAAP were 1.89 dollars, below market consensus of 1.96 dollars.

AWS third-quarter revenue was 46 billion dollars, up approximately 39% year over year, with growth accelerating. Revenue was approximately 2% above FactSet market consensus, but below higher buy-side expectations.
AWS’s operating margin was 38.7%, up 4 percentage points year over year and above Citi’s previous forecast of 35.5%. The company expects AWS revenue growth to exceed 40% in both 2027 and 2028.
Supporting growth requires continued capacity expansion: Amazon maintained its forecast for 220 billion dollars in cash capital expenditure in 2026. Citi is watching the balance among AI monetization, improved equipment utilization and depreciation pressure.

North American retail revenue was 112.9 billion dollars, up 6% year over year and in line with market consensus. Operating profit was 8.7 billion dollars, approximately 6% above Citi’s forecast, and the margin rose to 7.7%, up 3.2 percentage points year over year.
International retail revenue was 43.1 billion dollars, up 5% year over year, or 8% excluding currency effects, and approximately 1% below market consensus.
Advertising revenue was 19.6 billion dollars, up 12% year over year excluding currency effects, with growth slowing. Citi attributed the slowdown to the higher comparison base resulting from Prime Day’s move to the second quarter and expects growth to return to a level near 20% in the fourth quarter.

The company expects fourth-quarter revenue of 240 billion to 247 billion dollars, with the midpoint broadly in line with market consensus. Currency movements are expected to reduce the growth rate by approximately 0.6 percentage points.
Fourth-quarter operating profit guidance is 28.5 billion to 33.5 billion dollars, with a midpoint of 31 billion dollars, below market consensus of 33.1 billion dollars. Citi still believes AWS and North American retail performance keeps the core business on a positive trajectory heading into the holiday season.
Citi has a buy rating and a target price of 350 dollars, based on approximately 31.5 times expected 2027 earnings. The bank believes cloud, e-commerce, Prime membership, advertising and margin improvement support a valuation premium; increased investment could affect margin expansion, and cloud competition could also affect pricing.