Amazon (AMZN) released its Q1 earnings report on Thursday, beating Wall Street's expectations in several areas. Despite this, the stock price initially surged but then reversed all gains in extended trading due to cautious comments made by the company's CFO, Brian Olsavsky, about a slowdown in growth from the key Amazon Web Services (AWS) cloud unit.
While AWS revenue grew 16% during the first quarter, down from an annual growth rate of 37% seen in the same quarter last year, Olsavsky noted that customers are continuing to "optimize" their spending, causing a slowdown in growth in the segment. He further stated that these optimizations are continuing into the second quarter, with April revenue growth rates about 500 basis points lower than what was seen in Q1.
Despite this guidance, Amazon's net sales, EPS, and Q2 net sales guidance all exceeded estimates compiled by Bloomberg. The company's efforts to rein in costs, which cost Amazon about $500 million in Q1, are expected to be a central focus on the earnings call. The company has also announced plans to lay off a total of 27,000 employees over the last few months.
Amazon's North America retail operations have gone back to making money, with the segment reporting operating income of $898 million this year compared to a loss of over $1.5 billion in the same quarter last year. Online stores sales also rose 3% compared to a decline of 1% year-over-year in Q1 2022.
Amazon CEO Andy Jassy highlighted the company's efforts to improve the cost to serve in its fulfillment network while increasing the speed with which it gets products into the hands of customers, expecting to have its fastest Prime delivery speeds ever in 2023. He also noted the continued robust growth of the company's Advertising business, largely due to ongoing machine learning investments that help customers see relevant information when they engage with the platform.
Jassy and Olsavsky spoke about the still-wary customer, both on the e-commerce and AWS sides of the business. They noted moderated spending on discretionary categories, shifts to lower-priced items, and healthy demand in everyday essentials such as consumables and beauty. The cautious spending trend among AWS customers reflects the uncertain economy, with enterprises looking for ways to save money and optimize costs to reallocate resources on new customer experiences.
Overall, while AWS growth has slowed, Amazon's earnings report highlights the company's continued efforts to deliver for customers amidst an uncertain economy. Despite the cautious spending trend among customers, Amazon's Q1 performance exceeded expectations in several areas, indicating the company's resilience and adaptability in a challenging economic environment.
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