Amazon CEO Andy Jassy will speak at a ribbon-cutting ceremony ahead of tomorrow’s opening of the NHL’s newest hockey franchise, the Seattle Kraken, at Climate Pledge Arena in Seattle on October 22, 2021.
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For most of its 27 years as a public company, Amazon Investors are being asked to sacrifice profits in exchange for growth. That’s no longer necessary.
In its first-quarter earnings report on Tuesday, Amazon’s operating margin hit double digits for the first time ever. During the period, the company’s profit margin climbed to 10.7% from 7.8% in the fourth quarter and exceeded the historical high of 8.2% in the first quarter of 2021.
While overall revenue growth has been stuck in the low double digits for several quarters and mired in single digits for parts of 2021 and 2022, profit-hungry investors are praising CEO Andy Jag. Andy Jassy is pleased with the combination of deep cost cuts and strong growth in higher-margin businesses such as advertising and cloud computing.
Operating income more than tripled in the quarter to $15.3 billion, while net profit also grew more than 200% to $10.4 billion.
“What this tells us is that Andy Jassy’s emphasis on Amazon services is working,” Maxim Group analyst Tom Forte told CNBC’s “The Closing Bell: Overtime” on Tuesday. . “When you combine that with his very aggressive expense management, you see these impressive profits.”
Amazon shares rose about 1% in after-hours trading. As of Tuesday’s close, the stock had gained 15% this year.
Amazon Web Services revenue grew 17% in the first quarter, exceeding Wall Street expectations. Amazon generates nearly two-thirds of its operating revenue from AWS and currently has annual revenue of more than $100 billion. AWS’ growth rate accelerated from 13% in the fourth quarter.
Digital advertising, a creative business Yuan and letter Two of the world’s most profitable companies have also become booming businesses for Amazon. Advertising revenue increased 24% to $11.8 billion in the first quarter from $9.5 billion in the same period last year.
“The advertising business is growing and AWS has been strong,” Amazon Chief Financial Officer Brian Olsavsky said during Tuesday’s earnings call when discussing the improvement in operating income. But there’s more . “This was driven in large part by cost controls, revenue expansion and a reduction in the cost structure across the company,” Olsavsky said.
He added that the retail business has also become more efficient due to “regionalization efforts,” which include restructuring its logistics network so that packages are shipped from facilities closer to shoppers.
Layoffs are an important part of the story.
The company has laid off more than 27,000 employees since the end of 2022, and the layoffs will continue into 2024.
Technology and infrastructure costs fell slightly compared with the same period last year, and sales and marketing costs fell 5%. Amazon reduced general and administrative expenses by 10%.
Amazon expects profitability to continue to grow in the second quarter, but at a more cautious pace. Operating income will increase to $10 billion to $14 billion from $7.7 billion in the same period last year. That’s still well ahead of revenue growth, which the company expects to grow 7% to 11% to $144 billion to $149 billion.
While Jassy continues to look for ways to cut costs, he supports significant investments in generative AI, particularly in the company’s cloud-based business where it’s rolling out 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 expenditures in 2024 compared with last year. Capital spending by Amazon and its cloud peers Microsoft and Google has accelerated in recent quarters as they respond to demands for cloud and artificial intelligence.
watch: All eyes are on AWS
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