A Recap Of Amazon's Earnings

If you missed the recap of the April Jobs report, you can read it HERE.

While Amazon will always be synonymous with Jeff Bezos, Andy Jassy is putting his imprint on Amazon. While staying true to its DNA, the Company is still aggressively investing in growth opportunities, but it has found a balance between growth and cost discipline.

The previous notes on Amazon can be found HERE and HERE.

In 1Q24, total revenues increased by 12.5% and operating income increased by 66%. Gross profit margin increased 2.5% to 49.3%. Sales & Marketing, Technology & content, and G&A declined. Total operating costs increased only by 1.1%. As a result, the operating margin increased to 10.7% from 3.7%.

CFO Brian Olsavsky encapsulated Amazon’s philosophy well in his reply to an analyst question:

Despite its massive size, sales growth for Amazon North America continues. Not only is Amazon gaining share from its large brick-and-mortar competitors, but also gaining share in the overall E-commerce segment. Analysts expect North America revenues to increase by double digits in 2024.

Revenues for Amazon Web Services (AWS) accelerated above the most bullish expectation to 17%. If you Missed ‘The Alpha In Infrastructure’, here is the LINK. It was a sizeable sequential increase and I believe revenue growth will gradually accelerate for two reasons:

1) The start-up and VC-funded ecosystem, that Amazon is much more levered to, was aggressive in managing costs over the past 18 months. The tide is turning towards investment again. AWS will benefit as workloads ramp.

2) A year ago, Amazon investors were worried that the Company was lagging in AI. The progress over the past 12 months is remarkable.

The technology stack of SageMaker (train Large Language models on choice of chips), Bedrock (train data on a variety of third-party models and deploy AI applications in a secure environment) and Q (Ai agent) is a competitive offering in the marketplace. Amazon has caught up with Microsoft. AI workloads should meaningfully increase in 2H24.

Margins. North America’s E-commerce margins exceeded 1Q19. Over the past five years, Amazon has increased the mix of third-party seller units substantially while also growing the advertising business from nascency to now a $47 Billion annualized run-rate. Third-party sales are more profitable than first-party sales and advertising revenue generally comes with 70-75% gross margins. The mix of revenue is significantly more profitable. Therefore, the previous high-water mark isn’t a ceiling, and profitability can grow well past the 6% level.

Amazon is also exporting its best practices to its international business where margins were positive for the first time in 8 quarters.

AWS margins increased by a whopping 700 bps sequentially.  Operating income increased by 84% year-over-year.  As the company ramps up capital expenses ahead of future AI-related growth, the rise in D&A will minimize future margin growth.  However, margins are sufficiently high to generate attractive returns.  Most long-term investors would prefer the Company invest in the large AI opportunity to grow the AWS moat. 

2022 was a difficult year for Amazon and Jassy. Slowing sales and rising costs (to support post-covid capacity additions) led to a big earnings and cash flow hit. This led to significant shareholder frustration. However, Andy Jassy has steadied operations and Amazon is on its way to sustainable sales and earnings growth in ecommerce. As the infrastructure layer, AWS will play a big role in advancing Generative Artificial intelligence and, at the same time, benefit from it.

The Amazon flywheel is still spinning.