Amazon reported sales growth and profit that beat expectations as the company delivered goods faster and more cheaply to shoppers while recent cloud-computing headwinds began to subside.
Amazon’s Wall Street shares surged nine per cent on the news, extending its stock market value more than $120 billion in after-hours trading. On the FTSE 100 index, it was up by just half a per cent this morning, later rising to nearly 11 per cent on Friday afternoon.
The company reported a quarterly profit of $6.7 billion, nearly double what analysts expected.
Facing an array of challenges, the company has aimed to keep its mantle as the world’s biggest cloud provider and online retailer.
Amazon recently answered AI front-runners Google and Microsoft with rival services of its own, drawing thousands of customers and touting the breadth of technology it has on offer, similar to what is powering the human-like chatbot ChatGPT.
In retail, Amazon has reorganized its fulfillment network and opened warehouses for same-day shipping closer to big metro areas, saving time and costs on delivery.
Brian Olsavsky, Amazon’s chief financial officer, said on a call with reporters that faster speeds have meant Prime loyalty customers are “shopping more often.”
For the second quarter, Amazon’s revenue grew 11% to $134.4 billion, beating estimates of $131.5 billion from analysts polled by Refinitiv.
Amazon’s cloud-computing division has been key. In recent months, Amazon Web Services (AWS) saw its sales growth slow as wary businesses scrutinized their cloud bills. Olsavsky said such “cost optimization” continued, but big companies were embracing the cloud anew, a lift to the division this spring and summer.
CEO Andy Jassy said in a statement, “Our AWS growth stabilized.”
The unit beat estimates of around $21.7 billion in second-quarter cloud sales, increasing them 12% to $22.1 billion. Its rivals posted bigger jumps off smaller bases: 28% growth in Alphabet’s June-quarter cloud revenue and a 26% quarterly increase for Microsoft’s Azure.
Commenting on the results, Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “Amazon has come out swinging this quarter in another beat for this earnings season. As expected, continued AI excitement has shown up in the numbers in a big way, with AWS once again accounting for the bulk of profits, despite a normalisation of trends.
“The potential is huge. By some estimations, AWS is worth multiple times Amazon’s current market cap. The possibility of this value being realised will rise as companies increasingly harness new technologies and infrastructure, where AWS products are poised and waiting to be adopted.
“Of course, the core retail operation can’t be ignored…The weakening consumer environment is having an impact on people’s willingness to spend, and this could get worse before it gets better – with the full pain of monetary tightening yet to filter down.”
Arun Sundaram, an equity analyst at CFRA Research, said the results showed Amazon was holding its own, including in so-called generative AI that can create new text, images and other content from past data.
“We can put any negative narrative to rest,” Sundaram said, adding AI’s potential “should benefit all the large tech companies.”
Jassy told analysts every business inside Amazon has multiple generative-AI initiatives underway, including customer-facing and cost-slimming efforts.
He said AWS’s spending on the technology represented a “significant” amount of the more than $50 billion in capital investments Amazon projected for 2023. Such investments, offset by lower fulfillment expenditures, are down from $59 billion in 2022.
Still, the boost that Amazon’s cloud could reap from powering businesses’ AI demand has yet to materialize in full. Thomas Monteiro, an analyst at Investing.com said. “In Q3, it is likely that companies will have to start showing results on that front.”
In e-commerce, consumers have acted with some reserve for months, putting off discretionary purchases and shopping for value. CFO Olsavsky said household budgets remain tight, but headwinds from inflation were easing.
Amazon is now expecting a bump from its biggest sales day ever as part of last month’s marketing blitz for loyalty shoppers known as Prime Day.
Monteiro said consumer sales were looking healthy in and outside Amazon for the back half of 2023.
Dan Coatsworth, stock market analyst at AJ Bell, said the better than expected results “have put investors in a better mood.”
“Its cloud computing problems aren’t getting worse, costs are being lowered in its fulfilment network and retail customers are getting their orders faster than ever,” he added.
The company forecast current-quarter net sales in the range of $138 billion to $143 billion. Analysts polled by Refinitiv were expecting revenue of $138.25 billion.
Longer-term, Amazon aims to turn one unit, its $35 billion in yearly gross business-to-business e-commerce sales, into $100 billion, Jassy told analysts.
Amazon has sought cost cuts all, with 27,000 people affected by layoffs, or what had been 9% of its roughly 300,000-person staff. It recently revealed more reductions at Amazon Fresh stores while searching for months for the right grocery strategy.
By Jeffrey Dastin and Chavi Mehta – Reuters