Amazon reported a powerful first quarter after the closing bell on Tuesday. Shares rose greater than 1% following the discharge. However, the upside was dampened by a lower-than-expected outlook. Revenue rose 13% yr over yr to $143.31 billion, beating expectations of $142.5 billion, in line with LSEG estimates. Earnings per share on a generally accepted accounting principles (GAAP) basis rose to 98 cents, compared with 31 cents last yr and the estimate of 83 cents. Operating income also tripled to $15.3 billion, a quarterly record that easily beat guidance of $11.26 billion and was well above the high end of management’s previous forecast of $12 billion. Amazon Why We Own It: Amazon could also be widely known for online shopping, but its cloud business is its real breadwinner. Advertising is one other fast-growing and high-margin business. Investing in a sturdy e-commerce logistics infrastructure makes the web store the go-to place as management works to dramatically reduce delivery times and reduce the general cost of service. Prime uses free shipping and video streaming with tons of other perks to maintain users paying every month. Competitors: Walmart, Target, Microsoft and Alphabet Last Purchased: August 23, 2023 Initiated: February 2018 Conclusion This was an incredible quarter for Amazon, which we imagine suggests further upside potential. The advantages of Amazon’s cost control measures were fully realized in the primary three months of 2024, as overall operating costs were lower than expected – especially shipping costs, which benefited from all regionalization efforts. Both e-commerce and cloud were booming. Although the outlook for the present (second) quarter was somewhat bleak, we would not be surprised if it seems to be conservative when actual results are announced in the summertime. Two reasons come to mind: the rebound in demand for the Amazon Web Services Cloud and management’s deal with further reducing the general costs of supporting its e-commerce customers. We are subsequently increasing our price goal from $190 to $200 per share. But we’re maintaining our 2 rating on the stock, recognizing that it’s still a bit too hot near the April 11 all-time highs. Amazon Web Services delivered one other outstanding performance in the primary quarter. AWS sales at the moment are a $100 billion annual run-rate business. Quarterly profitability was also improbable. Last week, numbers from Microsoft’s Azure and Alphabet’s Google Cloud were strong. AWS cloud revenue rose 17% within the quarter to a better-than-expected $25.04 billion. But the unit’s operating profit margin was staggering – rising over 13 percentage points, or 1,300 basis points, leading to a virtually $2 billion increase in operating profit over expectations. However, management noted within the post-earnings conference call that the primary quarter is predicted to be the low point of the yr for capital spending. That’s because the corporate plans to reply to strong demand for generative AI and cloud computing and increase investments to support AWS infrastructure, which could put some pressure on AWS profit margins. CEO Andy Jassy said cloud customers’ cost-cutting efforts are complete and so they are moving toward investing again. “We are seeing significant momentum on the AI front, where we have already achieved billions of dollars in revenue,” he added. Nevertheless, we imagine that the investments make sense given the opportunities presented to us. As gigantic as AWS already is, Jassy identified that 85%, if no more, of worldwide IT spending continues to be happening on-premises “before you even calculate Gen AI, most of which will be in the next 10 years.” “To be built from scratch by 20 years.” and on the cloud.” So we’re still scratching the surface of what this company can turn out to be over time. In our week-ahead preview commentary, we cited North American e-commerce as a probable swing factor for operating income – and indeed, the segment shined in the primary quarter. North America revenue increased 12% to $86.34 billion, resulting in a 455% increase in operating income to $4.98 billion, because of an extra reduction in cost-to-serve, leading to a improved operating leverage. While international e-commerce sales rose 10% to $31.94 billion, falling in need of estimates, the segment posted an operating profit of $903 million. Expectations had called for a lack of $571 million, down from a lack of $1.25 billion in the identical period last yr. The first quarter saw the fastest delivery times ever for Prime customers, Jassy said on the decision, as customers look to Amazon for more purchases in categories like “Everyday Essentials,” driving up overall spending and buy frequency. Looking ahead, management noted that there continues to be quite a lot of work to be done to cut back cost-to-serve. As an example, Jassy said: “We are working to extend the consolidation of units into fewer boxes. As we proceed to optimize our network, we’ve got seen a rise within the variety of units delivered per case, which is a vital think about reducing our costs.” Amazon’s fast-growing advertising business grew 24% in the first quarter, exceeding expectations $11.8 billion. On the call, Jassy said: “Prime Video Ads is still in its early stages, having only launched a few months ago. It’s off to a really good start.” Last week, club names Meta Platforms and Alphabet also saw improvements in their ad businesses. Forecast: Amazon expects second-quarter net sales to be between $144 billion and $149 billion, representing year-over-year growth of 7% to 11%. This is a shortfall compared to the expected $150.1 billion. However, thanks to disciplined cost management, the operating profit forecast is expected to be significantly closer to the mark at $10 billion to $14 billion, compared to the expected $12.73 billion. The median of sales and operating profit estimates suggests an operating margin target of 8.2%, compared to an estimate of 8.5% for the second quarter. This also represents a strong expansion from the 5.7% in Q2 2023. (Jim Cramer’s Charitable Trust is long AMZN, MSFT, GOOGL. See a full list of stocks here.) As a subscriber to CNBC Investing Club with Jim Cramer , You will receive a trade notification before Jim makes a trade. 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Amazon CEO Andy Jassy speaks with CNBC’s Andrew Ross Sorkin (not pictured) on April 11, 2024.
CNBC
Amazon reported a powerful first quarter after the closing bell on Tuesday. Shares rose greater than 1% following the discharge. However, the upside was dampened by a lower-than-expected outlook.
