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In keeping with the theme of this earnings season – low expectations surpassed – Amazon reported better-than-expected results on Thursday. The e-commerce giant that had struggled to live up to expectations in 2022, reported a net profit of $3.2 billion on net sales of $127 billion for the first three months of 2023, beating analyst expectations on the top and bottom line.
“There’s a lot to like about how our teams are delivering for customers, particularly amidst an uncertain economy,” said Andy Jassy, Amazon CEO, pointing towards robust advertising growth, improved cost efficiency in the company’s vast fulfillment network and record fast delivery speeds for Prime members. While there was in fact a lot to like in the results, investors do have a tendency to focus on the negatives and so it was a comment made by CFO Brian Osavsky on the company’s earnings call that turned an initial 10-percent pop in Amazon’s share price into a three-percent decline by late Thursday evening and Friday morning.
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter,” Olsavsky had told analysts, warning that April figures pointed towards AWS (Amazon Web Services) revenue growth rates about 500 basis points below Q1 growth. In the first quarter, Amazon had seen 16 percent growth in its AWS segment, which was already down from 29 percent growth in the full year 2022.
As the following chart shows, AWS is Amazon’s third biggest operating segment in terms of sales, but because it’s by far the most profitable part of the company’s vast operations, investors tend to look at its performance particularly closely. The chart also illustrates that the world’s most popular online retailer has expanded its business considerably over the past few years. While its core “online stores” business, i.e. first-party e-commerce sales recognized on a gross revenue basis, accounted for 64 percent of sales in Q1 2017, it amounted to just 40 percent of total sales in the latest quarter.
This chart breaks down Amazon’s revenue in the three months ended March 31, 2023 by segment.
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