Amazon's Smashing Q1 Financials Show The Power Of A Good And Well Executed Strategy

Like Meta Platforms META, Snap Inc SNAP and Google parent Alphabet GOOGGOOGL,  Amazon.com Inc AMZN reported better-than-expected quarterly results, with stronger than expected revenue being the result of the improvements on the ad business front.

First Quarter Highlights

In part due to its booming AWS division and its advertising service, Amazon reported revenue grew 12.52% YoY to $143.3 billion, surpassing LSEG’s estimate of $142.5 billion. Operating income far outpaced revenue growth as well as it soared more than 200% to $15.3 billion, which is the first sign that Amazon’s cost-cutting initiatives and efficiency improvements are benefiting the bottom line as net income skyrocketed 229% YoY to $10.43 billion, with diluted EPS amounting to 98 cents a share, surpassing LSEG’s estimate of 83 cents.

Amazon’s businesses are thriving, beginning with party seller services that cover commissions that Amazon collects, along with fulfillment, shipping fees and other charges, grew 16% YoY to $34.5 billion.

AWS continues to grow and challenge Google and Microsoft, both the cloud and AI front.

The AWS division reported a 17% YoY growth to $25 billion, surpassing StreetAccount’s estimate of $24.5 billion and reflecting Amazon’s strong positioning compared to its AI rivals, Microsoft Corporation MSFT, who secured a leadership position with its early entry and OpenAI acquisition, and Alphabet, with the latter finally catching up to its peers in their efforts to lead the way into the golden age of AI.

AWS’ actions could spell trouble for Alphabet and Microsoft as Jassy revealed significant investments over the next few years to build new infrastructure and data centers. Amazon will be investing $5.3 billion in Saudi Arabia and $5 billion in Mexico to build new infrastructure centers, along with $10 billion in Mississippi to build two data centers that are projected to create at least 1,000 jobs.

Advertising continues to grow, becoming an increasingly important profit driver. 

Advertising revenue grew 24% to $11.8 billion, outpacing both retail and cloud computing growth, as well as StreetAccount’s estimate of $11.7 billion. This is the first report since Amazon introduced ads in Prime Video, which analysts expect to generate significant revenue over time. Despite being new to the ad business, Amazon has emerged as one of the big players in the online advertising arena. CEO Andy Jassy has made it clear that the e-commerce and cloud titan will continue to focus on its ad efforts, as it plans include more of its sponsored content on its Prime Video platform.

First quarter results across the board show that online ads have rebounded. Last week, Alphabet also announced its ad business reaccelerated after a tough 2022 and 2023. Google reported total ad sales rose from last year’s comparable quarter, when they amounted to $54.55 billion, to $61.66 billion. 

Second Quarter Outlook

Amazon expects profitability growth to continue in the current quarter but at a more measured pace as it guided for an operating income between $10 billion and $14 billion, on the back of revenue in the range between $144 billion to $149 billion, translating to revenue growth in the range between 7% and 11%. 

Amazon’s disciplined focus on efficiency is showing results.

Cost-cutting across the board, fulfillment operations tweaks and stabilization of cloud spending all partially contributed to the earnings growth as Amazon focused to grow its most profitable services, including advertising, cloud computing, Prime memberships and its third-party marketplace.

Amazon continues to stand out among its Big Tech peers as it is yet to implement a quarterly dividend. In February, Meta announced its first dividend at 50 cents a share. Last week, Alphabet followed the footsteps of Meta as it announced its first ever dividend of 20 cents a share.

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