Amazon reported Q1 sales that narrowly topped estimates and guided below consensus for current-quarter growth in results released after the bell on Tuesday afternoon in the US.
On the face of it, the top-line wasn’t especially impressive. $143.3 billion’s a big number (and it matched the top-end of the company’s guide from last quarter), but it didn’t count as a big beat. Consensus was looking for $142.6 billion.
Growth of 13% was a slight downshift from the holiday quarter. Andy Jassy called the results “good.” (But what else is he going to say?)
The Q2 top-line guide looked underwhelming. Amazon expects current-quarter sales to be between $144 billion and $149 billion. Taking the midpoint, that’s 9% YoY growth, give or take. The Street was looking for more than $150 billion.
Of course, what matters most currently is AI and if anything had the potential to override an underwhelming top-line guide, it was upbeat AWS commentary spiced with AI references. Jassy obliged.
“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is re-accelerating AWS’s growth,” he said Tuesday, noting that AWS’s annual run rate is $100 billion currently.
Analysts expected AWS net sales of $24.11 billion in Q1. Actual revenue was $25.04 billion, up 17% YoY. That may be all that matters for the stock, frankly. Expenses fell from Q1 of 2023.
The release was replete with AI references. Nvidia came up half a dozen times. (The two companies have a “strategic collaboration,” which includes an AI super-computer called Project Ceiba.) AWS, Amazon said, is “the best place to run NVIDIA GPUs.”
Ad revenue continued to rise at a 20%+ clip, jumping 24% to $11.82 billion, basically in line with estimates.
Operating income of $15.3 billion looked like a very large beat on ~300bps of margin upside versus consensus. EPS of $0.98 handily topped the $0.82 estimate. The midpoint of the Q2 guide for operating income was right on consensus.
All in all, my guess is that the AWS/AI results and commentary will be enough to offset what looked like a so-so top-line result and guide. In other words: How you read Amazon’s report largely depends on how excited you are about AI’s potential to enhance cloud revenue.
If you ask Jassy, the good times are just beginning. “It’s very early days in all of our businesses,” he said. “We remain excited by how much more we can make customers’ lives better and easier moving forward.”
A glass half empty analysis, comme toujours.
Very interesting report. Unlike some peers, AWS does not have tougher comps ahead. Comps in 2Q are 360bp easier than 1Q, and stay about the same through 2024. So AWS may be more likely to sustain or accelerate growth in coming quarters than, say, MSFT Cloud. AMZN’s profitability gains look like a trend not a blip, since high margin revenue (AWS, ads, subscriptions) are 33% of revenue gaining 2 points internal share annually, and AMZN leveraged every reported expense line – even depreciation. Capex hinted at over $60BN this year – but that’s what AMZN spent in 2021 and 2022, so a standard investment cycle for them. FCF is returning to traditional strong levels, FCF/net income =130% L4Q, and even with capex and debt paydown to net cash by year-end, some very excess levels of cash look likely in the coming year or so. AMZN historically doesn’t, and cannot (FTC etc), make mega-acquisitions. It historically has not been a big share repurchaser – what happens if it becomes one and initiates a dividend too?