Although the e-commerce and cloud titan reported stronger-than-expected profit and sales in the period. Amazon.com Inc. AMZN also warned that growth in its cloud computing business is continuing to slow down. With positive quarter results, Amazon joined its tech peers Alphabet Inc GOOG, Microsoft Corporation MSFT and Meta Platforms Inc. META. However, they had better news on the cloud front as Microsoft reported sustainable cloud sales and Alphabet’s Google Cloud division reported its first profitable quarter.
First Quarter Key Figures
Total revenue increased 9.4% to $127.4 billion while net income amounted to $3.2 billion, or 31 cents per share, improving from last year’s comparable quarter when the bottom line was a net loss that amounted to 3.8 billion or 38 cents per share.
Operating income was $4.8 billion, rising from last year’s $3.67 billion, and therefore showing that Amazon’s cost cutting efforts are starting to pay off. Bloomberg reported that analysts, on average, projected $3 billion.
Advertising Was The Brightest Spot
Like Meta whose online advertising business went back to growth after three quarters of sales declines, Amazon’s advertising sales grew 23% to $9.51 billion, and seller services jumped 18% to $29.8 billion.
Amazon Web Services, the largest seller of rented computing power and software services who is facing off Microsoft and Alphabet’s Google saw its revenue rise 16% as it amounted to $21.4 billion. While the growth rate topped Wall Street estimates, it was a record low since Amazon began reporting AWS sales, with sales slowing down further in April.
Amazon still relies on AWS as its main source of operating income that helped the company fund its biggest bets. Chief Financial Officer Brian Olsavsky also noted that AWS is less profitable now than it was a year ago partly due to discounts given to longer-term contracts as consumers became more cost-conscious in the current macroeconomic climate.
The e-Commerce Slow Down
As the pandemic-era boost became history, Amazon’s core e-commerce business was flat compared to 2022’s quarter, dropping about 4% from 2021’s quarter.
Second Quarter Outlook
Amazon projects both revenue and profit for the undergoing quarter to be in line with expectations. Even with the cloud slowdown, sales are expected in the range between $127 billion to $133 billion and operating profit in the range between $2 billion to $5.5 billion.
As CEO Andy Jassy put it, machine learning is deeply ingrained in everything that Amazon does. With 25 years of experience in the field, Jassy is certain that AWS will benefit from AI developments as it will help companies customize the technology for their own needs. Jassy also revealed that AmazonIis developing computer chips involved in training large-language models which are the basis of Microsoft’s OpenAI’s ChatGPT.
Efficient Cost Cuts
Even big tech knows the importance of lowering costs. Meta has targeted to reduce its 2023 operating expenses by $3 billion, cutting about 21,000 jobs over two rounds of layoffs in March and back in November. After more than a year of intense cost-cutting strategy under which Amazon will erase 27,000 jobs, results suggest its efforts have already started to pay off. Operating expenses rose 8.7% which is the slowest pace in at least a decade. With Jessy at the helm, new warehouse expansion got slowed down and construction of its second HQ in Virginia got paused. For the first time since late 2021, the North America segment was profitable on an operating basis.
Biggest Layoffs In Its Almost Three Decades Long History
Last Wednesday, Amazon announced its latest round of layoffs that mostly concern AWS employees. As of March 31st, it employed 1.47 million people which is 10% less than last year’s comparable quarter, being down from 1.54 million workers who were employed at the end of the previous quarter, three months earlier.
To Sum It Up
The first quarter earnings reflect that Amazon has been shifting towards its more profitable businesses such as selling advertising and services to independent merchants who rent space in its warehouses and on its website. With e-commerce and cloud business slowing down, like Meta, Amazon benefited from the recovery of digital advertising.