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Amazon CEO Andy Jassy appears on tape ahead of tomorrow’s season opener for the NHL’s newest hockey franchise, the Seattle Kraken, at Climate Pledge Arena in Seattle on October 22, 2021. I gave a lecture on the cut.
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For most of its 27 years as a publicly traded company, Amazon Investors have been asked to sacrifice profits for growth. That’s no longer needed.
In its first-quarter earnings report on Tuesday, Amazon announced that its operating margin reached double digits for the first time in its history. The company’s profit margin for the same period rose to 10.7% from 7.8% in the fourth quarter, surpassing the all-time high of 8.2% in the first quarter of 2021.
Although overall sales growth has remained in the low double digits for several quarters, dipping into the single digits in 2021 and parts of 2022, investors looking for returns are looking forward to the return of CEO Andy Jassy. The CEO is pleased with the combination of significant cost savings and strong growth rates. In high-margin businesses such as advertising and cloud computing.
Operating profit more than tripled to $15.3 billion in the quarter, and net income increased more than 200% to $10.4 billion.
“Andy Jassy’s focus on Amazon services is paying off,” Maxim Group analyst Tom Forte said in an interview Tuesday on CNBC’s “Closing Bell: Overtime.” I understand that,” he said. “When you combine this with his very aggressive expense management, you get amazing profit margins.”
Amazon shares rose about 1% in after-hours trading. As of Tuesday’s close, the stock is up 15% since the beginning of the year.
Amazon Web Services’ revenue rose 17% in the first quarter, faster than Wall Street expected. Almost two-thirds of Amazon’s overall operating profit comes from AWS, with annual revenue currently exceeding $100 billion. AWS growth accelerated from 13% in the fourth quarter.
Digital advertising is a viable business meta and alphabet Two of the most profitable companies on the planet are also booming for Amazon. Advertising revenue in the first quarter rose 24% to $11.8 billion from $9.5 billion in the same period last year.
“Advertising is growing and AWS is doing well,” Amazon Chief Financial Officer Brian Olsavsky said during Tuesday’s earnings call regarding the improvement in operating profit. But that’s not all. “A lot of that is driven by cost control and top-line revenue growth and the company’s overall low-cost structure,” Orsavsky said.
He added that “localization efforts” such as restructuring the logistics network so that packages are shipped from facilities closer to shoppers have also improved retail efficiency.
Layoffs are a big part of this story.
The company has cut more than 27,000 jobs since the end of 2022, with the layoffs extending into 2024. Amazon laid off hundreds of staff in its healthcare and AWS businesses in the first quarter.
Technology and infrastructure costs were slightly lower than the prior year period, and sales and marketing costs were down 5%. Amazon reduced general and administrative expenses by 10%.
Amazon expects profitability to continue to rise in the second quarter, but at a more measured pace. Operating profit is expected to be between $10 billion and $14 billion, up from $7.7 billion in the same period last year. This is still a much higher growth rate than sales, which the company expects to grow 7% to 11% to $144 billion to $149 billion.
While Jassy continues to look for ways to reduce costs, he supports large investments in generative artificial intelligence, particularly in the cloud business where the company launched its AI services.
Olsavsky said on the conference call that he expects these efforts and investments in AWS infrastructure to lead to a “meaningful” increase in Amazon’s capital spending in 2024 compared to last year. Amazon and its cloud allies Microsoft and Google have accelerated capital spending in recent quarters to meet cloud and AI demands.
clock: All eyes were on AWS