Amazon announced its revenue results on Thursday, which was more than anticipated. However, the initial increase in the stock's value was nullified when executives expressed concerns about the persistent decline in the growth of its cloud services.
Key numbers:
-31 cents per share earnings
-$127.4 billion vs $ 124.5 billion revenue expected, as per analyst’s survey by Refinitiv
Amazon key segments performance during the quarter:
Web Services – According to Street Account $21.3 billion vs $21.22 billion is expected
Advertising- $9.5 billion vs $9.1 billion expected
During the first quarter, AWS sales increased by approximately 16% to reach $21.35 billion, which was higher than the estimated $21.22 billion predicted by Wall Street. However, this represents a decrease in growth rate from the previous quarter, during which AWS grew by 20%.
Due to the challenging economic environment, companies have been reducing their cloud expenses in recent months. On s call after the report, finance chief Brian Olsavsky cautioned that clients are continuously cutting costs.
After Amazon announced that its revenue had increased by 9% from the previous year, surpassing expectations, its shares initially increased by as much as 10%. However, despite the positive revenue outcome, Amazon is still experiencing single-digit sales growth and is emerging from its weakest year of expansion since becoming a public company 25 years ago.
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter.”
“We are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1.” finance chief Brian Olsavsky said
During the earnings call, the stock's value decreased and became negative, ultimately dropping by nearly 3% below its closing price.
Amazon has estimated that its revenue for the second quarter will be between $127 billion and $133 billion while analysts from Refinitiv predicted sales of $129.8 billion. Based on this forecast, Amazon expects a sales increase of 5% to 10% compared to the same period in the previous year.
Since taking over as CEO in July 2021, Andy Jassy has been actively reducing costs as Amazon contends with the deceleration of sales in its online retail and cloud computing sectors. Amazon has discontinued various experimental ventures, such as a telehealth initiative and a range of fitness wearables. Additionally, it has curtailed new warehouse expansion and suspended the construction of its second headquarters in Virginia, which is referred to as HQ2.
Amazon has announced the largest job cuts in its 29-year history, with 27,000 employees being laid off. This week, employees in AWS and human resources were dismissed, following previous cuts in advertising and Twitch live streaming.
In the quarter, Amazon recorded a net income of $3.2 billion or 31 cents per share as opposed to a net loss of $3.8 billion or 38 cents per share in the same period the previous year. The company's operating income for the quarter increased from $3.67 billion to $4.77 billion year-over-year. Amazon continues to rely on AWS for its profitability as the cloud unit produced an operating income of $5.1 billion during the quarter.
Amazon's advertising division is performing well with revenue increasing by 23% to $9.51 billion compared to the previous year.
Before the after-hours market activity, Amazon's shares had risen by 31% for the year, following a decline of nearly 50% in 2022.
“Our advertising business continues to deliver robust growth, largely due to our ongoing machine learning investments that help customers see relevant information when they engage with us, which in turn delivers unusually strong results for brands,” CEO Andy Jassy said in the earnings statement.
