Amazon's Q1 Earnings Report: Strong Revenue Growth but Missed EPS Expectations Amidst Slowing AWS

Highlights

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• Amazon's Q1 2023 revenue reached $127.4 billion, up 9% YoY, but earnings per share missed the consensus estimate.

• The company faced headwinds from the ongoing pandemic and increased competition from rivals like Walmart and Target.

• Amazon's advertising business was one of the fastest-growing segments, with revenue reaching $9.08 billion, up 25% YoY. However, AWS growth slowed down to 16% YoY

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Amazon, the tech giant that dominates e-commerce, cloud computing, and digital advertising, reported its first-quarter earnings on Thursday, April 27, 2023. The company beat Wall Street expectations on revenue, but missed on earnings per share. Amazon also saw slowing growth in some of its key segments, such as AWS and advertising, amid a challenging economic environment and cost-cutting measures. Recently Amazon initiated laying off AWS employees due to slowing sales growth.

Revenue: $127.4 billion, up 9% year over year

Amazon reported net sales of $127.4 billion for the first quarter of 2023, up 9% from $116.4 billion in the same period last year. This was above the analysts' consensus estimate of $124.5 billion. The revenue growth was driven by strong performance in North America, where sales increased 11% to $76.9 billion. International sales also grew 1% to $29.1 billion, or 9% excluding the unfavorable impact of foreign exchange rates.

However, Amazon's revenue growth was still below its historical pace of double-digit expansion. The company faced headwinds from the ongoing pandemic, which disrupted supply chains and consumer demand. Amazon also faced increased competition from rivals like Walmart, Target, and Shopify, which have been investing heavily in their e-commerce capabilities.

Earnings: $0.31 per share, down from $0.38 per share

Amazon reported net income of $3.2 billion for the first quarter of 2023, or $0.31 per diluted share. This was below the analysts' consensus estimate of $0.21 per share. The earnings decline was mainly due to a pre-tax valuation loss of $0.5 billion from the company's common stock investment in Rivian Automotive, Inc., an electric vehicle startup. In comparison, Amazon recorded a pre-tax valuation loss of $7.6 billion from the same investment in the first quarter of 2022.

Amazon's operating income also decreased to $4.8 billion in the first quarter of 2023, compared with $3.7 billion in the same period last year. The operating income included approximately $0.5 billion of charges related to estimated severance costs, as Amazon announced another round of layoffs in March that affected 9,000 employees across various units. This was on top of the 18,000 job cuts that the company made in recent months.

AWS: $21.4 billion, up 16% year over year

Amazon Web Services (AWS), the company's cloud computing division, reported sales of $21.4 billion for the first quarter of 2023, up 16% from $18.4 billion in the same period last year. This was slightly above the analysts' consensus estimate of $21.22 billion. AWS also reported operating income of $5.1 billion, down from $6.5 billion in the first quarter of 2022.

AWS continued to be the largest and most profitable segment for Amazon, accounting for 17% of its total revenue and 106% of its operating income. However, AWS also faced slowing growth as businesses trimmed their cloud spending amid a challenging economic environment. AWS grew 20% year over year in the fourth quarter of 2022, down from 27.5% in the third quarter of 2022. In January 2023, AWS grew at a mid-teens rate year over year. Jefferies analysts estimated that AWS would grow at 13% year over year in the first quarter of 2023.

AWS also faced increasing competition from rivals like Microsoft Azure and Google Cloud Platform, which have been gaining market share and offering lower prices and more features to attract customers.

Advertising: $9.5 billion, up 21% year over year

Amazon's advertising business, which includes sponsored products and brands on its e-commerce platform and display ads on its devices and websites, reported revenue of $9.08 billion for the first quarter of 2023. This was up 21% from $7.9 billion in the same period last year, and slightly above the analysts' consensus estimate of $9 billion.

Advertising was one of the fastest-growing segments for Amazon, as it leveraged its massive customer base and data to deliver targeted ads to users. With its advanced algorithms and machine learning capabilities, Amazon has been able to analyze customer behavior and preferences, and serve them with relevant ads that are more likely to convert into sales. This has made advertising a lucrative business for Amazon, which has seen a significant increase in its advertising revenue over the years.

Conclusion

Amazon's Q1 2023 earnings showed mixed results, with revenue beating estimates but earnings per share missing expectations. The company's advertising business continued to be a bright spot, with strong growth driven by its vast customer base and data-driven targeting capabilities. However, the pandemic and increased competition from rivals weighed on Amazon's growth in some of its key segments, such as AWS. Overall, the Q1 earnings indicate that Amazon is navigating a challenging economic environment and taking steps to streamline its operations, while still delivering solid performance across its diverse business lines.