Amazon’s Strong Gains Masked by Worries About Cloud Outlook for Investors

Amazon posts surprisingly strong gains, but cloud outlook worries investors

Amazon started the new financial year with an unexpected increase in sales, even amidst high inflation and concerns about the economy. The world’s largest online mail-order company reported a sales growth of 9% YoY to $127.4 billion in the first quarter, with operating profit increasing by around 30% to $4.8 billion. Net income also reversed from a loss of $3.8 billion in the same period of 2022 to a net profit of $3.2 billion in the first three months of this year.

However, immediately after Amazon warned that cloud customers would tighten their belts, the share price fell by two percent. The lucrative cloud business around the Amazon Web Services platform, which offers companies applications and storage space on the internet, increased revenue by 16% to $21.4 billion. However, this is less than a year ago when AWS was still growing by 20%. Amazon’s CFO Brian Olsavsky expressed skepticism about the further development of the cloud business, stating that “customers continue to explore ways to optimize their cloud spending in response to these tough economic conditions in the first quarter.”

The first quarter was marked by major job cuts at Amazon, with the Internet giant announcing that it would lay off a further 9,000 employees. The wave of layoffs is intended to reduce costs, but initially costs money. According to Olsavsky, there were already approximately $470 million in severance costs in the past quarter, and overall, the number of employees fell by ten percent to 1.47 million.

Despite these challenges, the company exceeded market expectations, with business targets for the current second quarter aiming for group sales of between $127 billion and $133 billion, and operating profit expected to be between $2.0 billion and $5.5 billion. Amazon CEO Andy Jassy is moving forward in his efforts to reduce costs after spending offensive amid the pandemic online ordering boom, with operating expenses increasing by just under nine percent in the first quarter – the lowest increase in at least ten years.

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