Amazon reported sales for Q2 that missed estimates on Thursday afternoon in the US. The company’s current-quarter revenue guide looked short of consensus too.
Andy Jassy grew the top-line by 10% last quarter, when revenue was $148 billion. That was better than the mid-point of the company’s guide from three months ago, but the Street was looking for $148.78 billion. If you strip out currency effects, sales grew 11%.
For Q3, Amazon guided for between $154 billion and $158.5 billion in sales. Taking the midpoint, revenue growth would be 9.2% this quarter. The company expects 90bps of FX drag.
Analysts were looking for sales of $158.43 billion in Q3. So, even at the top-end of the range, Amazon would merely meet estimates. Operating income for Q3 is seen between $11.5 billion and $15 billion. The Street was looking for $15.66 billion there. That shortfall may suggest Amazon’s blowing through money trying to stay in the AI race.
Running quickly through the numbers, online store sales of $55.392 billion were a little short ($55.54 billion seen), while physical store sales of $5.206 billion likewise looked light ($5.26 billion seen there). Subscription service revenue of $10.866 billion was a miss (analysts wanted $10.93 billion), although it’s worth noting that excluding currency impacts, subscription sales growth was actually ahead of the 10.5% the Street wanted.
The company’s ad business brought in $12.771 billion, up 20% YoY. That growth rate continues to come down. It was 26% ex-FX impact two quarters ago and it was 24% last quarter.
I’ve buried the lede, as I’m wont to do. AWS sales beat, rising 19% to $26.3 billion. If that doesn’t entirely offset the overall revenue shortfall, it certainly helps. “We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued re-acceleration in AWS growth,” Jassy said. Again: If you’re Amazon and you can only beat in one place, AWS is where you want to beat.
“As companies continue to modernize their infrastructure and move to the cloud, while also leveraging new generative AI opportunities, AWS continues to be customers’ top choice,” Jassy went on. “We have much broader functionality, superior security and operational performance [and] a larger partner ecosystem.”
I’ll leave it to company analysts to decide whether that’s sufficient to mitigate the sales miss and the light guide. EPS was $1.26 for Q2, better than expected. Operating income of $14.7 billion easily beat estimates but, as alluded to above, profitability in Q3 is seen well short.
Meanwhile, in Cupertino, Apple reported a record for June quarter revenue. Sales of $85.8 billion topped consensus by more than a billion.
Revenue thus returned to YoY growth after falling in five of the last six quarters. Apple’s fiscal Q3 was the best quarter for revenue growth since the September 2022 quarter.
Here I won’t bury the lede: iPhone sales of $39.296 billion beat, and Greater China revenue of $14.728 billion missed. Those are your key line items, although what analysts really want is some visibility into iPhone 16 and “Apple Intelligence,” which may be delayed until October, according to reports. Tim Cook described it as “a breakthrough personal intelligence system that puts powerful, private generative AI models at the core of iPhone, iPad and Mac.”
The rest of the numbers were fine. Mac sales of $7.009 billion were a slight beat. iPad brought in $7.162 billion, considerably more than expected (new models were to thank). Wearables beat too, posting sales of $8.097 billion. And services revenue of $24.213 billion was ahead of the $23.96 billion the Street wanted to see.
EPS of $1.40 was a beat, operating expenses were in-line and gross margin beat.
What can you say? It’s Apple. They’re going to be fine. And virtuous. Cook emphasized both on Thursday. “We continue to invest significantly in innovations that will enrich our customers’ lives,” he said. At the same time, Apple’s “leading with the values that drive our work.”
Thanks for the insightful comments.
FYI – “Service” revenues is whre Apple includes the payola Google pays Apple to be included as the preferred search vendor. Something like $21 billion annually. (Estimated because the company refuses to publically itemize it.) That is under threat because of a Google antitrust court decison which will be released, hopefully by the end of this month.
Just something to be aware of.
Well, well, well…. the judge released the court’s verdict a little ahead of time. Great timing for a market already on its heels.
“Apple gets by far the biggest revenue chunk from Google, Daryanani said, noting that Apple receives about $20 billion as a result of its deal with Google. “[The] payment falls almost entirely to pre-tax profit, so it would represent an about 15% earnings headwind if the payment goes away,” Daryanani wrote, adding that this was the one antitrust case involving Apple that he believes could pose a material risk.”
As of 8/2, 69% by name/61% by cap of the S&P 500 has reported 2Q. 60% by name/73% by cap beat cons rev, 81% by name/87% by cap beat cons EPS. 42% by name/49% by cap saw 3Q cons rev go up, 38% by name/34% by cap saw 3Q cons EPS go up. Average price reaction was 0.0% by name/-0.2% by cap.
Compare to this point for 1Q (as of 5/3), 75% and 72% reported 1Q, 62% and 71% beat rev, 81% and 88% beat EPS, 41% and 36% rev go up, 40% and 48% EPS go up, 0.0% and 1.0% px reac.
I would worry if AWS wasn’t doing well. I wonder if people who aren’t in technology understand just how much of the world’s information infrastructure lives in Amazon datacenters. I don’t have numbers but the view from the trenches is that they’re the big daddy, comparable in that arena to what Google is in web search, or what Hershey is to chocolate bars… the first name people think of. I would have to imagine that division’s health is a barometer for the health of the online world in general, and the business world that depends on it.