It's hard to believe, but 2023 is on its way out. Many companies are now reporting third-quarter earnings, which leaves just one more quarter to go for the year. For most companies, these results will be reported when we've already turned the page on the calendar to the new year.
Investors started the year with a bullish feeling, and the market came very close to ending the current bear market. But continued macroeconomic and geopolitical issues have dragged down market enthusiasm, and the S&P 500 is now up a more moderate 8.5% this year.
However, the year still isn't over, and some recent earnings reports have been stellar, leading to stock gains. Amazon (AMZN 2.29%) is getting back to some serious growth, and its stock popped after earnings last week. Shopify (SHOP 0.28%) reported excellent results as well this week that sent its shares soaring.
Both of these stocks recently split their stocks, providing better entry points for investors. They could still surge higher before the year is over.
1. Amazon: All systems go
Amazon has been muddling through a host of problems since growth accelerated early in the pandemic. It posted its first annual loss in 10 years in 2022, and it's been working to cut costs and generate greater demand across its business.
There's been steady progress, culminating in an outstanding 2023 third quarter. Sales increased 13% over last year to $143 billion, operating income more than quadrupled to $11.2 billion, and net income more than tripled from $2.9 billion to $9.9 billion. Free cash flow returned to an inflow of $21.4 billion over the trailing 12 months, up from an outflow of $19.7 billion for the previous 12 months.
What was exceptional about the report is that growth occurred throughout the business. Amazon is a lot more than e-commerce, and there was momentum in multiple categories.
E-commerce was strong, and third-party sales, which account for 60% of total Amazon store sales, was even stronger, up 20% over last year.
Amazon Web Services (AWS) sales increased 12% over last year, which isn't an improvement from last quarter's growth, but the company is beginning to see trends improving in cloud computing. CEO Andy Jassy said that companies are starting to take on bigger workloads and that AWS signed major new deals that won't show up until the fourth quarter.
Advertising has become an important revenue driver in recent years, and ad sales were up 26% over last year, making it the highest-growing category. Amazon has been using AI to improve its matching capabilities, and the exposure it provides for advertisers toward customers they are trying to reach is hard to match. Advertising revenue increasing is also a sign of businesses returning to higher budgets.
Amazon stock is up 11% since the report. As more companies release encouraging earnings reports and generate market confidence, it could go even higher.
2. Shopify: Still an incredible growth stock
Shopify is a platform for e-commerce merchants, so while its revenue is much lower than Amazon's, its gross merchandise sales, which includes all the sales from its millions of merchants, is actually similar to Amazon's store sales. As Shopify continues to attract new merchants who appreciate its turnkey solutions for getting online fast, it continues to post strong double-digit growth, including a 25% year-over-year increase in the 2023 third quarter.
Investors love Shopify because it has so much future potential. It's the backbone of a tremendous amount of e-commerce around the world, and e-commerce continues to outpace overall growth in retail spending.
The company is also excellent at creating new products that meet customer demand, generating greater engagement and higher sales. Some recent developments are Shopify Magic, a suite of artificial intelligence tools that makes it easier for merchants to run their businesses, as well as Shop by Installments, a service that allows merchants to offer the same installment payments in their brick-and-mortar shops that they do in their online businesses.
This focus on evolving products has helped Shopify catch more business from enterprise customers, which are often interested in specific solutions instead of complete packages. Enterprise customers tend to pay more, and this expands the company's reach.
Shopify stumbled last year after building out too much even as demand began to wane, just like Amazon and other retail-oriented companies. It's cleaning that up by cutting costs, and it demonstrated results in the third quarter. The company posted $122 million in operating income vs. a $346 million operating loss last year, and and $276 million in free cash flow vs. a $148 million outflow last year. As investors gain confidence in e-commerce, Shopify stock could go even higher.
