Amazon's stock dips on uncertainty over AWS cloud growth

Amazon’s stock dips on uncertainty over AWS cloud growth

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Shares of Inc. initially popped in extended trading as the company reported a solid first-quarter earnings beat, but investor sentiment rapidly cooled as company executives raised concerns over the growth of Amazon Web Services Inc., its cloud computing subsidiary, and the stock ended the day down more than 2%.

Amazon reported first-quarter revenue of $127.4 billion, up 9% from a year earlier and above the analyst’s consensus estimate of $124.5 billion. Net income came to 31 cents per share, or $3.2 billion, above the 21-cent-per-share forecast.

The company also reported operating income of $4.8 billion, up from just $3.7 billion in the year-ago quarter and at the higher end of its own guidance.

Amazon said its cloud computing subsidiary delivered revenue of $21.3 billion in the quarter, up 16% from a year ago and just ahead of the $21.22 billion that was forecast by analysts. AWS is closely watched because it’s the biggest profit driver for Amazon, though it has seen growth slow in recent quarters amid a broader decline in technology spending.

Amazon illustrated the importance of AWS to its bottom line when it revealed that AWS generated an operating income of $5.1 billion in the quarter.

“We like the fundamentals we’re seeing in AWS, and believe there’s much growth ahead,” Amazon Chief Executive Andy Jassy (pictured) said in a statement.

However, there are questions over how rapid that growth ahead will be. In a conference call, Amazon Chief Financial Officer Brian Olsavsky admitted that AWS customers are still looking for ways to optimize their cloud spend, due to the ongoing economic uncertainty they face. “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,” he told analysts.

Later, Olsavsky admitted in response to a question that the company expects AWS’ revenue growth to be at a lower rate in the coming quarter.

The slowing cloud growth may well be offset by Amazon’s advertising business, which saw revenue jump by 23% from a year earlier to $9.51 billion. “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.

However, Amazon’s guidance for the next quarter wasn’t convincing. The company revealed that it’s looking for revenue of between $127 billion and $133 billion, the midpoint of which is just above Wall Street’s guidance of $129.8 billion. The forecast suggests that Amazon’s revenue will grow by around 5% to 10% from a year earlier.

Amazon has found itself mired in single-digit revenue growth for several quarters now, and just as its cloud customers are searching for ways to cut back on their expenses, it too has also been in cost-cutting mode. In the last few months, the company has aggressively laid off thousands of employees and axed various products and services. Some of the company’s unproven bets, such as its telehealth business, have been shut down completely. Amazon has also slowed down its new warehouse expansion plans and has brought construction on its new headquarters in Virginia to a halt.

The job cuts have affected Amazon’s human resources, cloud, advertising and Twitch livestreaming businesses. All told, the company had reduced its headcount by 76,000 people globally to 1.46 million employees at the end of the quarter. That figure includes attrition in its warehouse operations, which is common following the peak holiday season, Amazon pointed out.

Regarding Amazon’s online shopping business, Olsavsky said certain inflationary pressures, such as shipping rates and electricity costs, are easing. He also spoke of ongoing efforts to improve productivity and efficiency within the company’s delivery network. The business remains under pressure though, as Olsavsky noted that consumers are “still looking to stretch their budgets further.”

Photo: SiliconANGLE

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