Amazon's Stock Falls Despite Strong Revenue as Cloud Growth Slows

Amazon reported first-quarter sales that exceeded analysts' expectations, sending its stock up initially in extended trading. However, the stock's gains were erased after executives warned of a slowdown in cloud revenue growth in the near term. Companies have been reducing their cloud spending amid a challenging economic environment, leading to Brian Olsavsky, Amazon's finance chief, cautioning that clients continue to tighten their belts. Despite the revenue beat, Amazon's sales growth remained in the single digits, coming off its weakest year for expansion since becoming a public company. Amazon shares initially jumped as high as 10% after the report but fell nearly 3% below their closing price during the earnings call.

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Amazon's First Quarter Results:

Amazon announced its first-quarter results on Thursday, with its earnings at 31 cents per share and revenue at $127.4 billion. The revenue exceeded analysts' expectations of $124.5 billion, according to Refinitiv. However, it is unclear whether the reported earnings are comparable to the Refinitiv analyst estimate of 21 cents per share.

Performance of Key Amazon Segments:

Amazon Web Services (AWS) generated revenue of $21.3 billion, surpassing the $21.22 billion that StreetAccount had estimated. However, the first-quarter growth rate of 16% is slower than the previous quarter's 20%. Advertising revenue increased by 23% year-over-year to $9.5 billion, while analysts had estimated it to be $9.1 billion.

Executives' Warning of Ongoing Weakness in Cloud Growth:

During the earnings call, Brian Olsavsky warned that customers continued to optimize their cloud spending, leading to the deceleration in cloud revenue growth. He stated, "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." Companies have been reducing their cloud spending amid challenging economic conditions, resulting in a slowdown in AWS growth.

Amazon's Second Quarter Forecast:

Amazon's second-quarter revenue is expected to be between $127 billion and $133 billion, indicating a sales growth rate of 5% to 10% compared to the same period last year. Analysts had estimated sales to be $129.8 billion, according to Refinitiv.

Amazon's Cost-Cutting Measures:

CEO Andy Jassy has been cutting costs aggressively as Amazon faces a slowdown in sales growth in its online shopping and cloud computing divisions. Amazon has shut down several unproven bets, such as a telehealth program and a line of fitness wearables. It has also slowed new warehouse expansion and paused construction of its second headquarters in Virginia, dubbed HQ2. Amazon is laying off 27,000 employees, the largest job cuts in its 29-year history. The company's headcount was reduced by about 76,000 people to 1.46 million employees as of the end of the first quarter.

Amazon's Stock Performance:

Despite Amazon's revenue beat, the stock initially rose in extended trading but then fell after executives warned of ongoing weakness in cloud growth. Amazon shares were up 31% for the year before the after-hours move, following a decline of almost 50% in 2022.