Amazon rebounds in Q1 but raises concerns about AWS cloud growth
Amazon rebounded in the first quarter, topping Street estimates and reporting its biggest quarterly profit since 2021.
The online giant reported its earnings amid efforts to cut costs, which include ongoing layoffs. Most recently, Amazon started eliminating positions in its lucrative Amazon Web Services (AWS) cloud-computing unit in the U.S., Canada and Costa Rica, reported Bloomberg.
Net income was $3.2 billion in the first quarter, or $0.31 per share, in the quarter ended March 31, compared with a net loss of $3.8 billion, or $0.38 per diluted share, in the year-ago period. It was a strong comeback for the company from its previous quarter (ended Dec. 31) when its income plunged to $0.3 billion, or $0.03 per share and it reported its first annual net loss since 2014.
Amazon’s net sales increased 9% to $127.4 billion, topping analysts’ estimates of $124.55 billion, from $116.4 billion in the first quarter of 2022. (Excluding the $2.4 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 11%.) North America segment sales increased 11% year-over-year to $76.9 billion.
Sales at AWS increased 16% year-over-year to $21.4 billion, down from an annual growth rate of 37% in the same quarter last year. Amazon CFO Brian Olsavsky raised Wall Street alarm during the company’s earnings call with investors when he said AWS revenue growth is decelerating in the current quarter.
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter,” Olsavsky told analysts on the call. “We are seeing these optimizations continue into the second quarter.”
In addition to AWS, Amazon best-performing sectors included advertising, whose sales rose to $9.51 billion from $7.88 billion a year ago. Online revenue fell by about $33 million.
"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,” said CEO Andy Jassy, who took the reins of Amazon from Jeff Bezos in July 2021.
The company reported operating income of $5.1 billion, down from $6.52 billion a year ago.
“There’s a lot to like about how our teams are delivering for customers, particularly amidst an uncertain economy,” stated Jassy. “Our Stores business is continuing to improve the cost to serve in our fulfillment network while increasing the speed with which we get products into the hands of customers (we expect to have our fastest Prime delivery speeds ever in 2023).”
Jassy also sounded an upbeat note about the company’s AWS business, which is dealing with “companies spending more cautiously in this macro environment.”
“We like the fundamentals we’re seeing in AWS, and believe there’s much growth ahead,” he said.
For the second quarter, Amazon expects net sales to be between $127.0 billion and $133.0 billion, or to grow between 5% and 10% compared with second quarter 2022.
Operating income is expected to be between $2.0 billion and $5.5 billion, compared with $3.3 billion in second quarter 2022.
To view Amazon’s first-quarter earnings release, click here.