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Amazon’s sales and earnings in the latest quarter exceeded Wall Street expectations, thanks to stronger-than-expected online sales and signs of improvement in its cloud computing division.
This revenue acceleration, coupled with cost-cutting measures that included significant layoffs earlier this year, resulted in higher profit margins for Amazon. After-tax earnings were nearly double what was predicted, leading to a 9% increase in the company’s share price during after-market trading. This adds to the stock rebound of 50% seen this year.
While much attention has been on the slowdown at Amazon Web Services (AWS), the company’s cloud division, this year, there are signs of improvement. AWS revenue growth for the first quarter slowed to 16%, compared to the 29% growth observed throughout 2022. However, in the second quarter, AWS revenue climbed by 12%, surpassing analysts’ expectations by two percentage points. There is hope that this indicates a turnaround for the cloud division.
Chief Financial Officer Brian Olsavsky attributed this performance to the stabilization of the cloud business. While customers are still trying to maximize their cloud spending, Amazon is experiencing increased demand for new computing workloads, with generative AI contributing to the recovery.
In comparison, Microsoft and Google both exceeded Wall Street expectations with revenue growth of over 20% in their respective cloud businesses. However, they also mentioned that customers are still seeking greater savings on their existing cloud spending.
Additionally, Amazon’s better-than-expected profit for the period can be attributed to job cuts and other cost reductions. The company has eliminated approximately 27,000 jobs in two rounds of cuts this year. Amazon also benefited from increased flexibility in its workforce by increasing the number of contract workers relative to full-time employees, reversing the trend during the pandemic when contractor numbers were reduced.
Amazon’s operating profit margin increased by 3 percentage points to 5.7%, surpassing expectations. The company’s success in controlling its costs has contributed significantly to its share price rebound this year.
Andy Jassy, CEO of Amazon, attributed the stronger margins to the company’s decision to divide its logistics networks into eight different regions. This has resulted in lower delivery costs, as goods are stored closer to customers. Jassy also highlighted that shorter routes and faster delivery times have contributed to increased demand.
In the quarter, revenue from Amazon’s online stores increased by 5% to $53 billion, faster than the anticipated 3.5% growth. However, pressure on consumer spending remains high, particularly following a challenging start to the year. Despite this, Amazon’s wide range of products and the demand for same-day delivery have helped the company withstand these difficult conditions.
Overall, Amazon reported an 11% increase in revenue to $134.4 billion. Earnings per share reached 65 cents, a significant improvement from the 20 cent loss the previous year. Wall Street had anticipated revenue of $131.5 billion and earnings per share of 35 cents.
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