Amazon’s Confusing Q1 2023: Shares Rally On Earnings Beat But “Optimizations” Spooked Investors
Amazon.com, Inc. (Nasdaq: AMZN) reported on Thursday its financial results for Q1 2023. The company recorded $127.36 billion in net sales, an increase from Q1 2022’s $116.44 billion. The revenue figure exceeded the previously announced guidance of $121.0 billion – $126.0 billion, and the street estimate of $124.7 billion.
Breaking down the topline quarterly sales, the North America division contributed $76.9 billion, international sales contributed $29.1 billion, and Amazon Web Services added $21.4 billion.
Operating income soared to $4.8 billion, compared with $3.7 billion last year and exceeding previously announced guidance of $0 – $4.0 billion. International sales still contributed a net operating loss of $1.2 billion compared to net operating income from North America at $0.9 billion and AWS at $5.1 billion. Operating margin at 3.7% also beat the estimated 2.38% by analysts.
Profits at the Seattle-based corporation were reported at $3.17 billion, or 31 cents per share, which was greater than the $2.24 billion projected by industry analysts.
After the firm released its financials, shares quickly spiked 11% in after-market trading.
However, cautious remarks about a slowdown in its key Amazon Web Services (AWS) cloud unit caused the stock to reverse all of its gains in extended trading.
On the company’s earnings call, Amazon CFO Brian Olsavsky told investors that AWS customers are continuing “optimizations” in their spending and forecasted a significant slowdown in growth from the segment, spooking investors.
“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 with April revenue growth rates about 500 basis points lower than what we saw in Q1.”
While AWS cloud unit grew by 16% during the first quarter, it was much slower than the 37% the company reported a year earlier.
“While our AWS business navigates companies spending more cautiously in this macro environment, we continue to prioritize building long-term customer relationships both by helping customers save money and enabling them to more easily leverage technologies like Large Language Models and Generative AI with our uniquely cost-effective machine learning chips, managed Large Language Models and AI code companion CodeWhisperer. We like the fundamentals we’re seeing in AWS, and believe there’s much growth ahead,” said CEO Andy Jassy in a statement.
Earlier this month, Amazon was reported to be working on a new AI project known as “Bedrock” to compete with OpenAI’s GPT-3 and DALL-E.
According to a blogpost, AWS has developed a new rival generative AI toolkit that can create text, images, and build chatbots with human-like capabilities. The project is expected to leverage AWS’s cloud computing infrastructure and vast dataset to train the model, and is only currently available to AWS customers.
Earlier this month, the firm cautioned that buyers have become more aware of their spending and are looking for ways to save money whenever possible. Furthermore, after relying on e-commerce during the pandemic, many shoppers have returned to in-store shopping. As a result, the company’s online retail operation saw no increase.
Amazon has already canceled several warehouse expansion plans in response to the post-pandemic atmosphere. Cost-cutting measures have intensified in the last two quarters, with layoffs in corporate areas such as devices, advertising, AWS, and live-streaming totaling 27,000, the most in the company’s 29-year history.
Information for this briefing was found via Yahoo Finance, The Guardian, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
