Amazon reported robust first-quarter earnings that surpassed market expectations as its cloud computing service, Amazon Web Services (AWS), experienced accelerated growth, buoyed by advancements in artificial intelligence (AI).
The e-commerce giant’s shares rose by more than 1% in after-hours trading, despite a broad selloff on Wall Street.
Overall strong quarterly earnings
Amazon exceeded market expectations, reporting earnings per share of 98 pence on revenue of $143.3 billion, surpassing estimates of 83 pence and $142.5 billion, respectively. Its overall sales revenue increased by 13% from $127.4 billion in the same quarter last year. Operating income surged to $15.3 billion, with a net income of $10.4 billion, both more than tripled from a year ago. Operating cash flow increased by 82% to $99.1 billion for the trailing twelve months.
Its key metrics of business growth, AWS, and the advertising segment, showed robust momentum, up 17% and 24% year on year, respectively. Meanwhile, its primary revenue contributor, the online store, recorded sales of $54.7 billion, up 7% year on year, slightly lower than the 8% growth in the fourth quarter of 2023. However, the growth of third-party seller services has decelerated, with sales up 16% to $34.6 billion, slowing from a 19% increase in the previous quarter and a 20% growth in the first quarter of 2023.
Amazon provided a positive outlook into the second quarter, expecting the operating income to range from $10 billion to $14 billion, representing a year-on-year growth of between 30% and 82%.
Amazon’s AWS growth accelerates
The ASW segment's sales revenue reached $25 billion, marking a 17% year-on-year increase, significantly surpassing the estimated $24.5 billion with 12% growth. This segment is regarded as a pivotal core business of the company, commanding leading market shares in the cloud business, followed by Microsoft’s Azure and Google Cloud.
AWS stands out as the most profitable division of the company, contributing 62% of the total operating profit. Its operating income amounts to $9.4 billion, nearly double the figure from the same quarter last year. Moreover, the cloud business generated 17% of the overall revenue in the first quarter, with an operating margin of 38%, which is a notable acceleration in growth of 14% and 30% respectively from the final quarter of 2023.
A combination of factors has contributed to AWS’s growth, including AI adoption, enhanced business spending on cloud computing, and cost-cutting measures.
Amazon is optimistic about the potential of the generative AI-powered assistant, Amazon Q, to assist its customers in software development and internal data analysis. Additionally, the extension of its "strategic collaboration" with NVIDIA represents another significant advancement in the AI field.
In line with the positive reports from other tech giants concerning cloud computing, such as Microsoft’s Azure and Alphabet’s Google Cloud, Amazon’s AWS has similarly benefited from a resurgence in business spending driven by the AI boom. Amazon observes that the trend of business cost optimization has been diminishing, which is expected to persist and further support the growth of AWS.
Earlier in April, the company announced plans to downsize hundreds of positions in cloud computing, aiming to "focus its efforts on key strategic areas that yield maximum impact." This reduction in workforce may additionally boost the segment's profit margin by trimming expenses.
Amazon’s advertising segment posts stable growth
The advertising revenue is meeting expectations, positioning it as the second fastest-growing business for Amazon. The segment generated $11.8 billion in revenue, marking a 24% increase from a year ago, compared to Alphabet’s 13% and Meta’s 27% growth in the same quarter. The ad-supported Prime Video plan is anticipated to sustain the growth of its advertising income. The segment has maintained stable growth of over 20% since the last quarter of 2022.
