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 an 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-over-year to $127.4 billion, also thanks to a strong advertising business. Operating profit increased by 30 percent to $4.8 billion.
The data was initially received positively on the stock exchange. However, when CFO Brian Olsavsky warned of a significant slowdown in growth rates in the cloud business, shares quickly turned negative again.
The cloud spare AWS has been the company’s most important profit driver for years. Rival Google reported a profit from its cloud division for the first time on Tuesday. However, Amazon CFO Olsavsky dampened expectations. “Enterprises continue to optimize their spend — just like Amazon, to be honest,” Olsavsky said when asked about AWS’s growth rate.
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.
CEO Andy Jassy, who, unlike the CEOs of other tech companies, usually skips conference calls with analysts, took the time to explain his strategy on Thursday.
“In the past year we have made a number of cost savings,” said Jassy. “In some cases, this has resulted in us having to close certain businesses such as our physical bookstores, Forestar Stores, Amazon Fabric, Amazon Care and certain devices where we didn’t see a path to meaningful revenue.”
The Amazon boss recently announced layoffs.
(Photo: Bloomberg)
The day before, Amazon had announced the end of the Halo fitness band, which was only launched in 2020. In addition, the mass layoffs continued. “We made the very difficult decision to cut about 27,000 jobs in the company,” said Jassy.
Investors had been eagerly awaiting the numbers. After all, Amazon had recently made a name for itself with slower growth and savings rounds. Amazon has also put the expansion of its second headquarters near the capital Washington on hold.
Loss in global online trade
In classic online trading, Amazon has returned to the black in North America: Instead of an operating loss of $1.6 billion in the same period last year, the bottom line in the first quarter of this year is almost $900 million. In international business, on the other hand, Amazon continues to make operational losses at $1.247 billion. As a result, the trading division was a loss-maker overall.
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 returned to physical stores after the pandemic, that expansion proved too aggressive. The management under Jassy has therefore recently put the brakes on the expansion.
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In the past few years, the cloud subsidiary AWS had always been able to tear 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 previous years. In the previous quarter, growth was still 20 percent – in 2021 even 40 percent.
In the past quarter, Amazon achieved sales of 21.4 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 surprised just as much as the advertising business,” concludes Raymond James analyst Aaron Kessler. 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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