Amazon Stocks Suffer as AWS Optimizations Drive Revenue Growth Slowdown
Amazon Stocks Suffer as AWS Optimizations Drive Revenue Growth Slowdown

Amazon Stocks Suffer as AWS Optimizations Drive Revenue Growth Slowdown

Amazon, the e-commerce giant, reported its first-quarter earnings on Thursday, which surpassed expectations, and initially boosted the company’s stock.

However, the stock reversed all of the gains made in extended trading due to cautious comments made by Amazon CFO Brian Olsavsky regarding a slowdown in its key Amazon Web Services (AWS) cloud unit.

During the earnings call, Olsavsky informed investors that AWS customers are continuing to optimize their spending, and there is likely to be a notable slowdown in growth from this segment. This news spooked investors, causing the stock to decline by about 2% near 8:00 p.m. ET on Thursday evening.

Olsavsky also stated that customers are evaluating ways to optimize their cloud spending due to tough economic conditions in the first quarter, and these optimizations are continuing into the second quarter.

Amazon Stocks Suffer as AWS Optimizations Drive Revenue Growth Slowdown
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The revenue growth rate for April is about 500 basis points lower than what was observed in the first quarter.

During the initial three months of the year, Amazon’s AWS unit experienced a growth rate of 16%, which is lower than the growth rate of 37% observed in the corresponding quarter of the previous year.

However, Olsavsky sought to ease the impact of this guidance by informing investors that the company is not trying to optimize for any one quarter or year. Instead, it is working towards building strong customer relationships and a business that will outlast everyone.

Late on Thursday, Amazon’s stock surged by up to 10% as investors processed the company’s Q1 earnings report. The earnings figures blew past Wall Street’s expectations for revenues, profits, margins, and current quarter guidance.

In the report, the company’s CEO, Andy Jassy, noted that there is a lot to appreciate about how Amazon’s teams are serving their customers, especially in uncertain economic times.

Amazon’s AWS Growth Slows Down

Amazon reported its Q1 earnings that exceeded analyst expectations in various areas. According to the report, the company’s net sales reached $127.36 billion, beating the estimated $124.7 billion. Similarly, the company’s earnings per share (EPS) of 31 cents were above the expected 20 cents.

In addition, Amazon Web Services (AWS) net sales were reported at $21.35 billion, surpassing the expected $21.03 billion. The company’s operating margin was 3.7%, which was higher than the predicted 2.38%. Finally, the Q2 net sales guidance ranged between $127 billion and $133 billion, above the expected $130.1 billion.

During the earnings call, Jassy and Amazon CFO Brian Olsavsky discussed the company’s ongoing efforts to control costs, which cost Amazon about $500 million in Q1. The company has also laid off a total of 27,000 employees in recent months.

Jassy stated that the company’s Stores business continues to improve the cost to serve in its fulfillment network while increasing the speed with which it gets products to customers. He also noted that the Advertising business is experiencing robust growth due to ongoing machine learning investments that help customers see relevant information when they engage with Amazon.

Amazon Stocks Suffer as AWS Optimizations Drive Revenue Growth Slowdown
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Jassy and Olsavsky also spoke about the cautious consumer behavior on the e-commerce and AWS sides of the business. Olsavsky noted moderated spending on discretionary categories as well as shifts to lower-priced items and healthy demand in everyday essentials.

Jassy explained that on the AWS side, enterprises are still cautious in their spending in these uncertain times, and customers are looking for ways to save money by optimizing costs rather than cutting them.

Despite initial enthusiasm over Amazon’s Q1 report, the excitement can mainly be attributed to the return of growth in certain areas of the business. For example, the North American retail operations have regained profitability, with an operating income of $898 million, compared to a loss of more than $1.5 billion in the same quarter last year.

Furthermore, while online store sales had declined by 1% year-over-year in Q1 2022, they increased by 3% in the first quarter of this year.

Overall, Amazon’s Q1 earnings report exceeded expectations, with significant growth in net sales and AWS, as well as improvements in the cost to serve in the company’s fulfillment network. The company’s executives acknowledge the impact of the uncertain economic climate on customer behavior but remain optimistic about their ability to serve customers effectively.