Amazon CEO Andy Jassy speaks at the ribbon-cutting ceremony ahead of tomorrow’s opening night for the NHL’s newest hockey franchise, the Seattle Kraken, at Climate Pledge Arena on January 22 October 2021, in Seattle.
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For most of its 27 years as a public company, Amazon Investors were asked to sacrifice profits for growth. It is not necessary any more.
In its first-quarter earnings report released Tuesday, Amazon’s operating margin reached double digits for the first time on record. The company’s margin climbed to 10.7% in the period, up from 7.8% in the fourth quarter and surpassing a previous high of 8.2% in the first quarter of 2021.
While overall revenue growth remained stuck in double digits for several quarters – and was mired in single digits for part of 2021 and 2022 – profit-hungry investors were pleased by the CEO’s combination of deep cost cuts. Andy Jassy and stronger growth rates. in higher margin businesses like advertising and cloud computing.
Operating profit more than tripled in the quarter to $15.3 billion, while net income also jumped more than 200% to $10.4 billion.
“This tells us that Andy Jassy’s focus on services for Amazon is working,” Maxim Group analyst Tom Forte said Tuesday in an interview with CNBC’s “Closing Bell: Overtime.” “When you couple that with his very aggressive expense management, you see impressive margins.”
Amazon shares were up about 1% in extended trading. The stock is up 15% for the year as of Tuesday’s close.
Amazon Web Services revenue grew 17% in the first quarter, a faster pace than Wall Street had expected. Nearly two-thirds of all of Amazon’s operating profit came from AWS, which now generates more than $100 billion in annualized revenue. AWS’ growth accelerated from 13% in the fourth quarter.
Digital advertising, a profession that is being done Meta And Alphabet two of the most profitable companies on the planet, has also become a booming business for Amazon. Advertising revenue rose 24% to $11.8 billion in the first quarter, up from $9.5 billion a year earlier.
“Advertising is growing and AWS has been strong,” Amazon Chief Financial Officer Brian Olsavsky said on Tuesday’s earnings conference call, discussing the improving operating profit. But there is more. “A lot of this is due to cost controls, increased revenue and reduced cost structures across the company,” Olsavsky said.
He added that retail has also become more efficient, thanks to “regionalization efforts” that include reorganizing its logistics network so that packages are shipped from facilities closer to shoppers.
Layoffs played an important role in this story.
The company has cut more than 27,000 jobs since the end of 2022, and those cuts will continue through 2024. During the first quarter, Amazon laid off hundreds of employees across its healthcare and AWS businesses.
Technology and infrastructure costs decreased slightly from the previous year, and sales and marketing costs fell 5%. Amazon reduced its general and administrative costs by 10%.
Amazon expects its profitability to continue to increase in the second quarter, but at a more measured pace. Operating profit will be between $10 billion and $14 billion, compared to $7.7 billion a year earlier. That’s growth well ahead of revenue, which the company expects to grow 7% to 11% to between $144 billion and $149 billion.
Although Jassy continues to look for ways to reduce costs, he supports big investments in generative artificial intelligence, particularly in the cloud sector, where the company has launched AI services.
Olsavsky said on the call that he expects these efforts, along with investments in AWS infrastructure, to lead to a “significant” increase in Amazon’s capital spending for 2024 compared to the previous year. ‘last year. Capital spending by Amazon and its cloud peers Microsoft and Google has accelerated in recent quarters as companies respond to demand for cloud and AI.
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