Amazon March Quarter Results Beats Estimates, Cloud's Uncertain Outlook Looms Over

Amazon Inc reported a revenue of $127.4 billion for first quarter ended March 31, 2023 against $124.5 billion expected, according to analysts surveyed by Refinitiv as per a CNBC report. The company's earnings reporting comes just after a day when it announced another massive layoff from its Amazon Web Services(AWS) division, executives raised concerns of ongoing weakness in cloud growth.

Amazon's net sales increased 9% to $127.4 billion in the first quarter, compared with $116.4 billion in first quarter 2022. Excluding the $12.4 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 11% compared with first quarter 2022.

Amazon Web Services sales revenue was at $21.3 billion, 16% up from $21.22 billion according to StreetAccount and Wall Street projections. Although sales came in higher than the estimated, it declined from the previous quarter, when AWS grew 20%.

In order to curtail costs, companies have been trimming their cloud spend in recent months amid a challenging economic environment. Finance chief Brian Olsavsky warned on the call after the report that clients keep tightening their belts.

"As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter," Olsavsky said. "We are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1."

Andy Jassy, on succeeding the founder Jeff Bezos as the CEO at the helm in July 2021, has been aggressively slashing costs as Amazon. As the company grapples with slowing sales in its online shopping and cloud-computing divisions. Amazon has shut shop of several of its more unproven bets, like a telehealth program and a line of fitness wearables. It's also slowed new warehouse expansion and paused construction of its second headquarters in Virginia, dubbed HQ2.

Amazon is laying off 27,000 employees, the largest job cuts in its 29-year history. Earlier this week, some employees in AWS and human resources were let go, following cuts in advertising and Twitch live streaming.

Amazon reduced its workforce employees head count by about 76,000 people to 1.46 million as of the end of the first quarter, reflecting the ongoing layoffs plans. As well as attrition in its warehouses that typically occurs following the peak holiday shopping period is also a part of getting trimmed.

Net income came in at $3.2 billion, or 31 cents per share, during the quarter, compared to a net loss of $3.8 billion, or 38 cents per share, in the year-ago period.

Operating income in the quarter rose to $4.77 billion from $3.67 billion a year earlier. The company is still dependent on AWS for its profitability, as the cloud unit generated operating income of $5.1 billion in the quarter.

For the second quarter, Amazon gave a guidance that the net sales are expected to be between $127.0 billion and $133.0 billion, or to grow between 5% and 10% compared with second quarter 2022. This guidance anticipates an unfavorable impact of approximately 30 basis points from foreign exchange rates.

Also the advertising revenue came in higher at $9.5 billion, above estimate of $9.1 billion and continues to hum along, with revenue growing 23% year-over-year. Olsavsky also told the reporters, "Advertising was a strong growth during the quarter at 23%, and that is continuing to hold up very well in an environment where perhaps the underlying sales of products is slowing,"

"Our advertising business continues to deliver robust growth, largely due to our ongoing machine learning investments that help customers see relevant information when they engage with us, which in turn delivers unusually strong results for brands," Jassy said in the earnings statement.

The stock's initial pop was wiped out after concerns were raised. The stock price rallied by nearly 10% initially when Amazon said revenue rose 9% from $116.4 billion a year earlier, topping estimates. Even with the revenue beat, Amazon remains mired in single-digit sales growth coming off its weakest year for expansion in its quarter-century as a public company. Prior to the after-hours move, Amazon shares were up 31% for the year after losing roughly half their value in 2022.