Amazon reported a strong first quarter after the closing bell on Tuesday. Shares rose more than 1% after the release. However, the upside was tempered by lower than expected expectations. Revenue rose 13% year over year to $143.31 billion, beating expectations of $142.5 billion, according to estimates compiled by LSEG. Earnings per share based on generally accepted accounting principles (GAAP) rose to 98 cents, compared to 31 cents a year ago and an estimate of 83 cents. Operating income also more than tripled to $15.3 billion, a quarterly record that significantly exceeded expectations of $11.26 billion and was well above the high end of previous management's guidance of $12 billion. Amazon Why we own it: Amazon may be widely known for online shopping, but its cloud business is the real breadwinner. Advertising is another fast-growing, high-margin business. Amazon's investment in a robust e-commerce logistics infrastructure makes its online storefront the go-to place for management that dramatically reduces delivery times and reduces the overall cost of service. Prime takes advantage of free shipping and video streaming with plenty of other perks to keep users paying each month. Competitors: Walmart, Target, Microsoft, Alphabet Last Purchased: August 23, 2023 Started: February 2018 Bottom Line This was a great quarter for Amazon that, in our opinion, points to more upside to come. The benefits of Amazon's cost control measures were on full display during the first three months of 2024 as operating expenses were lower than expected across the board – most notably in fulfillment costs, which benefited from all regional structuring efforts. Both e-commerce and the cloud were booming. While expectations for the current (second) quarter have been a bit light, we wouldn't be surprised to see them conservative when actual results are announced over the summer. There are two reasons that come to my mind: rebounding demand for the Amazon Web Services cloud and management's focus on further reducing the overall cost of serving e-commerce customers. As a result, we raise our price target to $200 per share from $190. But we maintain our 2 rating on the stock, recognizing that it is still very hot near the all-time highs set on April 11. AMZN Mountain Amazon Commentary Quarterly YTD Last quarter, we announced that “the cloud is back.” Amazon Web Services delivered another stellar performance in the first quarter. AWS sales are now a business with a $100 billion annual run rate. Quarterly profitability was also impressive. Last week, Google Cloud numbers from Microsoft Azure and Alphabet were strong. AWS cloud sales rose 17% to $25.04 billion better than expected in the quarter. But the unit's operating profit margin was impressive — expanding by more than 13 percentage points, or 1,300 basis points, resulting in a nearly $2 billion increase in operating income versus expectations. However, management noted on the post-earnings conference call that the first quarter is expected to be the lowest point of the year for capital expenditures. That's because the company plans to meet strong demand for generative AI and cloud computing — leading to increased investments to support AWS infrastructure, which could squeeze AWS's profit margin a bit. CEO Andy Jassy said that cost-cutting efforts by cloud customers have been completed and they are once again leaning towards investments. “We are seeing great momentum on the AI front as we have already raised multi-billion dollar revenue rates,” he added. However, we believe the investments make sense given the opportunity before us. As big as AWS is already, Jassy noted that 85%, if not more, of global IT spending remains in-house “before you even count artificial general intelligence, most of which will be built over the next 10 to 20 years.” Zero and on the cloud.” So, we're still at the scratch stage of what this business can become over time. In our Next Week preview commentary, we described North American e-commerce as a potential disruptor to operating income – and indeed, this sector shined in the first quarter. Sales in North America grew 12% to $86.34 billion, driving operating income up 455% to $4.98 billion thanks to additional reductions in cost of service, which improved operating leverage. While a 10% increase in international e-commerce sales to $31.94 billion came in below estimates, the sector saw $903 million in operating income. Expectations were for a loss of $571 million, after a loss of $1.25 billion in the same period last year. The first quarter saw the fastest delivery times for Prime customers ever, as customers look to Amazon for more purchases in categories like Everyday Essentials, increasing overall spending and repeat purchases, Jassy said during the call. Looking to the future, management indicated that it sees a lot of work to be done to reduce the cost of service. For example, Jassy cited, “Working to further consolidate units into fewer boxes. As we further optimize our network, we have seen an increase in the number of units delivered per box, which is an important driver of cost reduction.” Amazon's fast-growing advertising business grew 24% to better-than-expected $11.8 billion in the first quarter. On the call, Jassy said: “Prime Video Ads, in its very early days, just launched a few months ago. It's a really good start.” Last week, club names Meta Platforms and Alphabet also saw improvements in their advertising businesses. Amazon expects second-quarter net sales to range between $144 billion to $149 billion, an increase of 7% to 11% year over year. This represents a loss compared to the expected amount of $150.1 billion. However, thanks to disciplined cost management, operating income is expected to approach $10 billion to $14 billion versus $12.73 billion expected. The midpoint of sales and operating income estimates indicates an operating margin target of 8.2%, compared to the 8.5% estimate for the second quarter. It also represents a strong expansion versus 5.7% in Q2 2023. (Jim Cramer's Charitable Trust is AMZN, MSFT, GOOGL. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert Before Jim trades. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. 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Amazon CEO Andy Jassy speaks with CNBC's Andrew Ross Sorkin (not pictured) on April 11, 2024.
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Amazon It reported a strong first quarter after the closing bell on Tuesday. Shares rose more than 1% after the release. However, the upside was tempered by lower than expected expectations.
