Stronger-than-expected online sales and signs that the slowdown in its cloud computing division had bottomed out lifted Amazon’s sales and earnings well above Wall Street predictions in the latest quarter.
The revenue acceleration, along with cost-cutting that included large-scale lay-offs earlier this year, also boosted Amazon’s profit margins and contributed to after-tax earnings that were nearly double expectations. The news lifted Amazon’s share price more than 9 per cent in after-market trading on Thursday evening, adding to a stock rebound that has added 50 per cent this year.
Much of Wall Street’s attention this year has been on a sharp slowdown at its cloud division, Amazon Web Services, as customers have grown more cautious in the face of economic uncertainty.
Revenue growth at AWS slowed to 16 per cent in the first quarter, compared to 29 per cent for all of 2022. The company said earlier this year that growth at the division had slackened to just 11 per cent in April.
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For the second quarter as a whole, however, Amazon said AWS’s revenue had climbed 12 per cent, beating most analysts’ forecasts by two percentage points and feeding hopes that the cloud division has turned a corner.
Chief financial officer Brian Olsavsky said the performance reflected a “stabilisation” in the cloud business, and that while customers were still trying to squeeze more out of their cloud spending, Amazon was seeing increasing demand for new computing workloads, with generative AI contributing to the recovery.
Microsoft and Google both beat Wall Street expectations last week with revenue growth of more than 20 per cent in their cloud businesses, though both also said customers were still trying to seek greater savings on their existing cloud spending.
Job cuts and other cost reductions also contributed to better profits for the period than expected, after a jump in spending last year. The company has shed around 27,000 jobs in two rounds of cuts this year. Mr Olsavsky said Amazon had also benefited from greater flexibility in its workforce as it had increased the number of contract workers relative to employees, reversing a trend during the pandemic when it had cut back on contractors.
Amazon’s operating profit margin increased 3 percentage points from a year before, to 5.7 per cent, well ahead of expectations. Renewed confidence that the company has got to grips with its ballooning costs has been a big factor in this year’s share price rebound.
Andy Jassy, Amazon chief executive, said the stronger margins reflected the company’s move to split its logistics networks into eight different regions, resulting in lower delivery costs as goods are stored closer to customers. “Regionalisation is working,” he said, adding that shorter routes and faster delivery times had also lifted demand.
Excluding currency movements, revenue from Amazon’s online stores increased 5 per cent to $53 billion (€48.38 billion) in the quarter, faster than the 3.5 per cent growth that had been expected.
Mr Olsavsky said pressure on consumer spending remained intense following a difficult start to the year. “Household budgets are very tight [and] people will trade down,” he said, leading to a shift in spending patterns. He added, though, that Amazon’s wide range, as well as demand for same-day delivery, had helped it withstand the more difficult conditions.
Overall, the US ecommerce company reported an 11 per cent increase in revenue, to $134.4 billion, while earnings per share reached 65 cents, compared to a loss of 20 cents the year before. Wall Street had been expecting revenue of $131.5 billion, with earnings per share of 35 cents. – The Financial Times Limited
