Source: Amazon
1Q2024 Earnings
Amazon $Amazon.com(AMZN)$ has exceeded expectations across all key earnings metrics:
EPS: 98 cents vs. 83 cents expected
Revenue: USD143.3 billion vs. USD142.5 billion expected
Advertising: $11.8 billion vs. 11.7 billion expected
In the latest quarter, Amazon's Advertising Services segment demonstrated a good revenue growth of 24% year-over-year. In comparison, Google's advertising grew by 13.04% and Meta's advertising by 26.81% during the same period.
Amazon Web Services: USD25 billion vs. USD24.5 billion expected
AWS experienced a year-over-year growth of 17%, lagging behind Google Cloud's growth of 28.44% and Microsoft Azure's 31% during the same period. However, AWS's operating income yoy growth was impressive at 83.9% compared to Google Cloud's 28.44%.
The AWS operating margin was 37.63% in the first quarter of 2024, up from 23.99% in the first quarter of 2023.
Jassy stated that the Gen AI-related sector is poised to generate multiple billions in AWS revenue this year, and he anticipates that the AI business surge could last for ten to twenty years as customers adopt the technology.
Amazon's focus on efficiency has borne fruit, as its operating income grew by 220.63% year over year to USD15.307 billion. In the first quarter of 2024, 61.55% of its operating income was contributed by AWS, compared to a 54.26% contribution in the fourth quarter of 2023. This indicates that the AWS cloud unit is growing significantly in Amazon's future roadmap.
The third-party seller services segment continues its double-digit year-over-year revenue growth at 16%.
Earnings Forecast
Net sales are forecasted to range between $144.0 billion and $149.0 billion, indicating a year-over-year growth of 7% to 11%. However, the company's net sales projection falls short of street expectations, which anticipate reaching USD150.1 billion, reflecting a 12% year-over-year growth.
Operating income is expected to be between $10.0 billion and $14.0 billion, compared with $7.7 billion in second quarter 2023.
Conclusion:
Amazon's earnings growth has been fueled partly by broad cost reduction measures, adjustments to its fulfillment operations, and the stabilization of cloud expenditure.
Amazon's stock only rose by 1.23% in after-market trading. This could be attributed to revenue guidance that fell short of expectations and the absence of announcements regarding dividends and share buybacks, despite mounting investor anticipation.
The trailing twelve months (TTM) free cash flow has surged to USD50 billion in the first quarter of 2024, compared to a negative USD3.3 billion TTM in the first quarter of 2023. Therefore, we believe that announcements regarding dividends and share buybacks may be forthcoming in the near future.
Amazon's Twitch has launched its own short-form video feature, Discovery Feed, to compete with TikTok in the short-form video space. This move could potentially generate an additional stream of advertising revenue in the future.
We maintain a long-term constructive outlook on Amazon. Its price-to-earnings (PE) ratio of 47.82x is comparatively modest compared to its 5-year average of 86x.
According to Bloomberg analyst consensus, the 12-month target price is currently at USD214.58, reflecting a 22.6% upside relative to yesterday's closing price of USD175.
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