Amazon has feeling the pinch for its cloud infrastructure business as companies continue to trim their cloud spend in this challenging macro environment.
On Thursday, April 27, e-commerce giant Amazon (NASDAQ: AMZN) announced the results for the first quarter (Q1 2023) with better-than-expected revenue. The company’s revenue stood at $127.4 billion against the expected $124.5 billion.
Amazon and AWS Performance in Q1 2023
Bifurcating this, Amazon Web Services (AWS) announced revenue of $21.3 billion which was quite on the expected lines. During the first quarter, sales at AWS jumped by 16%, however, this marked a deceleration from the previous quarter when sales surged by 20%. During the conference call, Brian Olsavsky, Amazon’s finance chief, said that “AWS sales and support teams continue to spend much of their time helping customers optimize AWS spending so they can weather this uncertain economy”.
In the cloud infrastructure market, Amazon has been facing tough competition from Alphabet, Microsoft, Oracle, and Alibaba, however, still enjoys a comfortable lead among its peers. In an interesting development earlier this week, Alphabet announced that its Google Cloud business has finally turned profitable.
The operating income for Amazon AWS stood at $5.12 billion. AWS has been a profit-generating engine for Amazon’s parent group since 2014. However, at 24%, the operating margins for AWS stood at the lowest since 2017. Earlier this week, Adam Selipsky, Amazon’s AWS CEO issued a memo noting that the company has started informing employees to be laid off. Selipsky wrote:
“Both the size of our business and the size of our team have grown significantly over recent years, driven by customer demand for the cloud and for the unique value AWS provides. This growth has come quickly as we’ve moved as fast as we could to build what customers have needed. Given this rapid growth, as well as the overall business and macroeconomic climate, it is critical that we focus on identifying and putting our resources behind our top priorities — those things that matter most to customers and that will move the needle for our business.”
AMZN Stock Corrects with Cloud Business Under Pressure
Soon after Amazon announced a 9% surge in revenue, the AMZN stock price rallied as high as 10%. However, the stock price turned negative during the earnings call. In the pre-market, the AMZN stock is trading 1.57% down at a price of $108.10.
Brian Olsavsky said that Amazon’s cloud business continues to stay under pressure amid the current macro environment as companies have been trimming their cloud spending. Sharing about the not-so-positive outlook on the Street, Olsavsky said:
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter. 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.”
For the second quarter, Amazon has given revenue guidance between $127 billion to $133 billion. The company is expecting sales to jump by 5-10% quarter-over-quarter. On the other hand, Amazon’s advertising business continues to witness robust growth.
“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,” CEO Andy Jassy said.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
