Amazon yesterday reported Q1 net sales of $127.4 billion, up nine percent from $116.4 billion during the same period a year ago. North American sales were up 11 percent compared to the same period a year ago, while international sales were up one percent.
Pretax profits for the quarter were $3.2 billion, a significant shift from a $3.8 billion loss during the first quarter of 2022.
Amazon’s advertising business was up 21 percent.
The Wall Street Journal writes that “Amazon’s vital cloud business rained on the party a bit. Revenue growth for the AWS segment was a record low 16% year over year and only barely exceeded Wall Street’s forecasts. And the unit’s operating income for the quarter of $5.1 billion was about 4% below analysts’ forecasts.”
The Journal also writes that while AWS accounts for just 16 percent of Amazon’s total business, it also is “the sole source of operating profit, as the retail side has been losing money for the past six quarters. It also suggests Amazon may be losing ground to arch-rival Microsoft, which projected better-than-expected growth for its Azure cloud business for the same period—and even noted some small contributions starting to come in from the generative artificial intelligence technology the company has only recently been adding to its products.”
CEO Andy Jassy, the Journal reports, “touted Amazon’s own efforts in generative AI, including the development of its own in-house chips to power the technology. But he also noted that much of AWS’s staff are busy helping customers ‘optimize’ their cloud spending, which means spending less as the economy slows. The reasoning is that such efforts produce greater customer loyalty in the long run.”
And the New York Times writes:
“For years, even decades, Amazon chose growth over profits. Making money took a back seat to establishing new markets. Sometimes this worked so well it changed the fundamental nature of the company. AWS grew at such a torrid rate that its profits have done much to compensate for Amazon’s anemic returns on the retail side.
“On the other hand, many small ventures remained small. When to shut them down is a decision that for years Amazon could put off, but no longer. Rising interest rates and balky consumers forced its hand.”
KC’s View:
The coverage of Amazon’s results suggests that the cuts and adjustments that Jassy has been making are helping to improve the company’s bottom line, but there also remains a possibility that there could be additional layoffs in the not-to-distant future as well as the elimination of business segments that aren’t carrying their own weight and/or showing no signs of doing so in the foreseeable future.
Amazon seems to be doing something that so many businesses have done over the years – putting the focus on “core” businesses. The problem at Amazon is that “core” traditionally has been defined differently and more broadly – and yes, more ambitiously – than at many other companies.
I continue to believe that one of the problems that Amazon and Jassy are going to face is the challenge of inspiration when the cutting has been done. They’ve pivoted, largely successfully, to a new era of fiscal responsibility since pandemic-area advances subsided. But at a certain point, they’re going to have to get ambitious again.
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