New York, San Francisco Despite high inflation and concerns about the economy, the world’s largest online retailer and cloud service Amazon started the new financial year with a significant increase in sales and exceeded the expectations of investors: it is not only sales that are growing again. The bottom line is that instead of a loss of billions in the previous year, there is again a plus.
Amazon, led by Andy Jassy, closed the first quarter of the year with a net profit of $3.1 billion. A year ago, the bottom line was a minus of 3.8 billion dollars. Revenue rose 9 percent year-on-year to $127.4 billion, also thanks to a strong advertising business. Operating profit increased by 30 percent to $4.8 billion.
Wall Street had expected significantly worse numbers and in the meantime sent the share price up by ten percent in the after-hours trading. The business targets for the current second quarter also exceeded market expectations. Amazon assumes group sales of between 127 billion and 133 billion dollars. Operating profit is expected to be between $2.0 billion and $5.5 billion.
Investors had been eagerly awaiting the numbers. After all, Amazon had recently made a name for itself with slower growth and savings rounds. According to the plans, a total of 27,000 employees are to leave the company. Amazon has also put the expansion of its second headquarters near the capital Washington on hold.
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Loss in global online trading
In classic online trading, Amazon has returned to the black in North America: Instead of an operating loss of 1.6 billion dollars in the same period last year, the bottom line in the first quarter of this year is almost 900 million dollars. In international business, on the other hand, Amazon continues to make operational losses at $1.247 billion. Overall, online trading was a loss-maker.
In online trading, Amazon had massively expanded capacities during the pandemic with more logistics centers and its own fleet of trucks and planes. Then, when people were taught back to physical stores after the pandemic, that expansion proved too aggressive. The management under Andy Jassy has therefore recently put the brakes on the expansion.
In recent years, the profitable cloud subsidiary AWS has always been able to pull out the weak results in retail. But AWS is also weakening. For the first time, Amazon had to report falling sales for the division compared to the previous quarter – i.e. the fourth quarter of 2022.
In a year-on-year comparison, however, AWS was able to report an increase in revenue of 16 percent – a very low value compared to the previous years. In the previous quarter, growth was still 20 percent – in 2021 even 40 percent.
In the past quarter, Amazon achieved sales of 21.3 billion dollars with its cloud offering. Analysts had expected even weaker numbers. Profits in the cloud business collapsed by 21 percent to $5.1 billion.
“Finally tailwind again”
In view of the even worse market expectations, analyst Andrew Lipsman from Insider Intelligence was able to take positives from the quarterly figures: “For the first time in several quarters, Amazon could finally have some tailwind again.”
“AWS has surprised as much as the advertising business,” says Aaron Kessler Analyst at Raymond James. He points out that the advertising business has grown by 23 percent.
“This is a turning point year,” commented Arjuna Capital’s Natasha Lamb. The shareholders are concerned. The share price is low. But given the low profit margins, the valuation is still relatively high.
Trade expert Julian Skelly from the consulting firm Publicis Sapient praises the fact that Jassy wants to invest in the use of generative AI. “In a time of economic difficulty, it’s good to see Amazon sticking to its core values: invent and simplify,” he comments.
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