Amazon soars in Q1, fueled by cloud and advertising growth

Amazon defied expectations in the first quarter of 2024, exceeding analyst predictions for both earnings and revenue. This impressive performance was driven by two factors: the continued dominance of Amazon Web Services (AWS) and the surprising strength of its advertising business.

Here's a breakdown of Amazon's first-quarter performance:

Earnings per share: 98 cents, surpassing the 83 cents expected by LSEG.

Revenue: $143.3 billion, exceeding the $142.5 billion expected by LSEG.

Further breakdown

Amazon Web Services (AWS): $25 billion in revenue, compared to the expected $24.5 billion.

Advertising: $11.8 billion in revenue, slightly exceeding the $11.7 billion expected.

AWS remained the star of the show. Revenue rocketed 17% year-over-year, exceeding Wall Street's forecasts and demonstrating a potential resurgence in cloud spending. This could be fueled by the growing demand for generative AI, an area where Amazon is well-positioned.

Advertising emerged as a surprise champion, with sales surging 24%. This impressive growth coincides with the launch of ads in Prime Video, a move that analysts predict will be a significant revenue generator in the long run. This surge positions Amazon as a major player in the online advertising space, a market that's rebounding after a difficult 2022.

The company reported a remarkable surge in operating income, which soared by over 200% to $15.3 billion. This substantial increase far outpaced revenue growth, indicating that Amazon's cost-cutting measures and focus on efficiency are significantly boosting its bottom line. Notably, AWS accounted for 62% of the total operating profit.

Looking ahead, Amazon expects continued growth in profitability for the second quarter, albeit at a more moderate pace. The company forecasts operating income to be in the range of $10 billion to $14 billion, up from $7.7 billion a year earlier. Revenue for the current quarter is expected to be in the range of $144 billion to $149 billion, representing a growth of 7% to 11%.

These impressive earning reports can be largely attributed to CEO Andy Jassy's disciplined approach to spending, coupled with the growth of profitable services like advertising, cloud computing, Prime memberships, and its third-party marketplace.

The company's advertising business, growing faster than retail or cloud computing, has become a crucial profit driver for Amazon and is emerging as a major player in online advertising. This growth in Amazon's advertising revenue is in line with a broader industry trend, as other tech giants, including Meta, Snap, and Google parent Alphabet, all reported better-than-expected revenue growth, primarily driven by improvements across their ad businesses.

Unfortunately, it has come at a human cost as the company has laid off over 27,000 employees since late 2022.

Despite its financial prowess, Amazon remains a standout among the big tech companies in that it has yet to implement a quarterly dividend. Meta already announced its first dividend in February at 50 cents a share, and Alphabet followed suit, announcing plans to start paying a dividend of 20 cents a share.