Amazon Profit Beats Estimates

Amazon has released its earnings data for the first quarter of 2024, which exceeded preliminary expectations.

Amazon Profit Beats Estimates

The mentioned result of the e-commerce giant, which is intensively expanding its scope of activity, and gradually becoming a major player in several industries, is largely due to improved financial performance in the advertising sector and the growth of similar figures in the cloud computing business.

On Wednesday, May 1, the company’s share price rose by about 2.5% in the premarket. Since the beginning of the current year, the securities of the e-commerce giant have risen in price by around 15%.

Amazon’s operating income for the quarter ended March 31 was $15.3 billion. This indicator increased by more than 200% compared to the result for the same period last year. The operating income earned by the e-commerce giant for the first quarter of 2024 is also evidence that the current brand’s cost-cutting and efficiency measures are appropriate. It is worth noting that the share of Amazon Web Services (AWS) in the structure of the specified indicator is 62%.

The e-commerce giant’s net income for January-March 2024 was fixed at $10.4 billion. This indicator has more than tripled compared to the result for the same period last year. Amazon’s net income per share was 98 cents. LSEG experts expected this indicator to be fixed at 83 cents.

The e-commerce giant’s sales volume for the first quarter of 2024 amounted to $127.4 billion. This indicator increased by 13% year-on-year.

Amazon’s revenue for the first three months of the current year was fixed at $143.3 billion. This indicator increased by 13% compared to the result for the same period last year. LSEG experts predicted that the revenue of the e-commerce giant for the first quarter of 2024 will amount to $142.5 billion.

The company also expects that the tendency of profitability growth will continue in the second quarter of the current year. At the same time, the e-commerce giant assumes that the corresponding dynamic will be more moderate compared to the pace recorded during the quarter ended March 31. Amazon expects its operating income between April and June to be between $10 billion and $14 billion. It is worth mentioning that for the corresponding period last year, the mentioned figure was fixed at around $7.7 billion.

The e-commerce giant also predicts that its revenue for the second quarter of 2024 will range from $144 billion to $149 billion. This indicator assumes an increase of 7-11% compared to the result a year ago.

Returning to figures for the first quarter of 2024, it should be mentioned that AWS sales amounted to $25 billion. This indicator increased by 17% compared to the result for the same period last year. At the same time, Wall Street experts expected AWS sales to reach $24.5 billion in the first quarter of 2024. Last year, the dynamic of the growth of this unit Amazon slowed down. The corresponding tendency is because the company has cut the amount of spending on cloud technologies. At the same time, Amazon management stated that cost optimization is being tapered off. According to them, the demand for generative artificial intelligence can become a factor of positive impact on the company’s cloud business.

Despite the above-mentioned slowdown in AWS growth in 2023, there is an obvious tendency for the gradual recovery of this unit of the firm, which is one of the most profitable structural elements of the overall system of functioning of the retailer, which has scaled beyond the scope of e-commerce. Currently, Amazon is restoring the previous amounts of financing for technology projects, including artificial intelligence services, which is logical against the background of a high level of global demand for AI.

Brian Olsavsky, the company’s chief financial officer, said during a conversation with reporters that there is nowadays significant customer interest in AWS products and services. According to him, currently signs long-term deals with large commitments, many of which include artificial intelligence components. Brian Olsavsky also stated that generative AI is currently a multibillion-dollar revenue-run rate business for Amazon. It is worth noting that the corresponding state of affairs is what can be described as a joint result of internal and external. The mentioned multibillion-dollar business was able to become a stable structure due to the efforts of the e-commerce giant in the direction of artificial intelligence, and also because of global technological trends, in which AI is the main force of change, including deep transformation, providing for a radical reorganization of workflows and other processes included in the space of human activity.

Chatbots with artificial intelligence, demonstrating impressive cognitive abilities, data crunching tools and other software focused on processing user requests and then generating responses, can function only if there are a huge number of advanced computer chips. It is worth noting that last year Amazon presented two microcircuits designed by AWS. One of these products was Graviton 4, a processor, propelling cloud services. Also last year, the company presented the second-generation artificial intelligence chip Trainium2, designed for large language models. So far, Amazon’s microcircuit manufacturing business is what can be described more as a kind of limited-scale project, but not a global-level activity. Over time, the company’s corresponding efforts can generate significant results, which are necessary in the context of geopolitical tensions, which put supply chains at risk. In addition, the experience of the coronavirus era, when international cooperation faced significant problems against the background of quarantine measures, became a kind of signal about the critical importance of business autonomy and independence in providing components.

Brian Olsavsky said that Amazon’s capital expenditures will increase significantly in 2024. He noted that, first of all, the relevant efforts will concern supporting the growth of AWS, including in the context of development in the paradigm of active use of artificial intelligence. Moreover, in the coming years, the company will spend more than $150 billion on the construction and operation of data centers.

Amazon CEO Andy Jassy, during a conversation with analysts after the data on the financial results of the e-commerce giant in the first quarter of 2024 were released, announced significant opportunities in the context of customer service using artificial intelligence. This statement can most likely be interpreted as a signal of the intention to scale the integration of AI into the firm’s workflows and products. Moreover, in the context of commenting on artificial intelligence as a factor, including the economic, of Amazon’s activities, he noted that the company accumulated a multibillion-dollar revenue run rate already. The corresponding indicator will likely be on a growth trajectory in the future since the e-commerce giant considers AI as one of the most important tools and foundations of its business.

Also during the first quarter of 2024, Amazon invested $4 billion in the startup Anthropic, which uses AWS chips to train artificial intelligence models. Adam Selipsky, CEO of AWS, said during a conversation with media representatives that the mentioned startup offers market-leading AI configurations in some areas. It is worth noting that Google has also invested in Antrophic.

As it was mentioned above, the revenue growth of the e-commerce giant in the first quarter of 2024 is largely due to large-scale cost-cutting, changes in customer service mechanisms, and stabilization of cloud technology spending. The CEO of Amazon, according to observers, has become more disciplined in spending the company’s funds. He also draws attention to the development of such profitable business areas as advertising, cloud computing, Prime membership, and a third-party marketplace.

Since the beginning of 2022, more than 27,000 Amazon employees have been laid off. In the current year, the company will continue to take measures to cut the number of employees. Hundreds of staffers from the healthcare unit and AWS have already been laid off in the first quarter of 2024.

The revenue generated by Amazon from the activities of its advertising arm for the first quarter of 2024 amounted to $11.8 billion. This indicator increased by 24% compared to the result for the same period last year. It’s worth noting that analysts surveyed by StreetAccount expected Amazon’s advertising business to generate $11.7 billion in revenue. The mentioned result is also a signal of the gradual recovery of the digital advertising market. The company relies heavily on this line of business in the context of growth prospects.

In 2022, the digital advertising market faced significant difficulties. At that time, brands began to massively and intensively cut their spending volumes to cope with such economic challenges as a significant increase in inflation and rising interest rates.

Amazon has also started to advertise on Prime Video. The corresponding activity of the e-commerce giant will likely generate significant revenue.

In the first quarter of 2024, financial indicators related to third-party seller services, including commissions collected by Amazon, shipping fees, fulfillment, and other charges, continued to demonstrate a tendency of growth. Sales of the corresponding unit of the e-commerce giant for January-March of the current year amounted to $34.5 billion. This indicator increased by 16% compared to the result for the same period 2023.

Amazon, whose ownership structure also includes the best American delivery service, continues to stand out among the large-cap Internet companies by the fact that it has not yet paid quarterly dividends, even as cash and equivalents jumped to $73.9 billion in the last quarter from $54.3 billion a year earlier. In February, Meta announced its first dividend of 50 cents per share. Alphabet made a similar decision last week. Google’s parent company will pay a dividend of 20 cents per share. Also, the mentioned business giants announced plans to buy back stocks worth tens of billions of dollars.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.