Amazon Q1 2024 Earnings Review
$AMZN Q1'24 Results:
Financial Results:
↗️$143M rev (12.5% YoY, +13.9% LQ) beat est by 0.6%
↗️Operating Margin (10.7%, +6.9%pp YoY)🟢
↗️FCF Margin, TTM ( 8.5%, +9.1%pp YoY)🟢
↗️Net Margin (7.3%, +4.8%pp YoY)
↗️EPS $0.98 beat est by 18.1%
Segment Revenue
➡️Net product sales $61M rev (6.9% YoY)🟡
↗️Net service sales $82M rev (17.1% YoY)
AWS
↘️AWS Revenue $25M rev (+17.2% YoY)🟢
↗️Operating Margin (37.6%, +13.6%pp YoY)🟢
Dilution
↘️SBC/rev 3%, -0.3%pp QoQ
↗️Basic shares up 1.4% YoY, +0.1%pp QoQ
↗️Diluted shares up 3.1% YoY, +0.2%pp QoQ
Guidance
↘️Q2'24 $144.0 - $149.0M guide (+9.0% YoY) missed est by -2.4%🔴
Key points from Amazon’s First Quarter 2024 Earnings Call:
Financial Performance
Amazon reported a revenue of $143.3 billion, up 13% year-over-year. Operating income was $15.3 billion, a significant increase of 221% year-over-year, and trailing 12-month free cash flow was $50.14 billion.
AWS (Amazon Web Services)
AWS revenue growth accelerated to 17.2% year-over-year in Q1, indicating a robust demand for cloud services.
Significant investments in generative AI capabilities are being made, with AWS positioned as a preferred platform due to its operational performance, security, and cost-effective chip technology.
AWS has a multi-billion dollar revenue run rate from AI services, reflecting strong customer adoption and potential for future growth.
Generative AI
Amazon is heavily investing in generative AI across various sectors of its business, particularly in AWS, where it offers comprehensive AI solutions like Amazon Bedrock and SageMaker.
These AI solutions are designed to assist companies in deploying AI applications more efficiently and effectively.
Competitors in Cloud Space
Amazon is facing intense competition in the generative AI market from companies like Anthropic, Meta, and others. However, AWS is a preferred platform due to its extensive features and security advantages.
Amazon Q
Launch of Amazon Q, an AI-powered assistant designed to aid in software development by automating code generation, debugging, and more.
Capabilities for integrating with enterprise data, making internal data more accessible and usable for development purposes.
Advertising
Advertising revenue continues to grow, driven by formats such as sponsored products and new initiatives like Prime Video ads.
Prime Video ads are showing promise as a new revenue stream, linking advertising more directly to sales outcomes.
Prime Video
Prime Video continues to be a significant draw for Prime subscribers, with new hits and consistent content generation.
The introduction of advertising within Prime Video offers a new dimension to the service, potentially enhancing revenue growth.
International and Emerging Market Focus
Amazon is seeing positive trends in international markets with both established and emerging countries contributing to profitability improvements. Efforts include enhancing logistics, increasing selection, and optimizing costs.
GenAI Tools for Sellers
Amazon launched a generative AI tool to help sellers automatically create high-quality product pages using a URL from their own website, significantly improving ease of entry and product listing quality.
Grocery market
Amazon is pushing into the grocery market with innovations in delivery and store concepts. New Prime benefits include more cost-effective grocery delivery options.
Prime Delivery Innovations
The company has made significant strides in delivery speeds, achieving record times for Prime members, with many items delivered the same or next day.
Challenges
Amazon noted that customers are cautious in spending, looking for lower prices and deals amid economic uncertainty.
Services like Buy with Prime and Amazon's third-party logistics offerings are growing, indicating good customer adoption and satisfaction with these new ventures.
The leadership acknowledged challenges related to recession fears, inflation, and other economic pressures affecting customer behavior and spending.
Management comments on the earnings call.
AWS
Andy Jassy: "We're seeing strong demand signals from our customers and longer deals and larger commitments, many with generative AI components. [...] We invest capital and resources upfront. We create capacity very carefully for our customers. And then we see the revenue, operating income and free cash flow benefit for years to come after that, with strong returns on invested capital."
Amazon Prime
Andy Jassy: "We have to have a perishables business and a mass physical presence. That's what we've been working on with Amazon Fresh. We've launched our V2 format in physical stores over the last few months, primarily in Chicago and Southern California. We like the early results a lot."
International Market
Brian Olsavsky: "In the quarter, our operating income was $902 million. And if you've watched that, we've seen a steady progression in operating income in our international segment, it's up $2.2 billion year-over-year."
Generative AI
Andy Jassy: "We have a multibillion-dollar revenue run rate that we see in AI already, and it's still relatively early days. [...] I expect an increasing amount of those [generative AI models] to be built on AWS over time because our operational performance and security and -- as well as our chips, both what we offer from NVIDIA."
Advertising
Brian Olsavsky: "Advertising remains an important contributor to profitability in North America and international segments. We see many opportunities to grow our offerings, both in the areas that are driving growth today like sponsored products and in areas that are newer, like streaming TV ads."
Prime Video
Andy Jassy: "It's off to a very good start. I think advertisers are excited about being able to expand their ability to advertise with us in video beyond Twitch and Freevee to Prime video shows, movies, I think they also find that the relevancy and the measurability of that type of advertising and Prime Video ads is unique for them."
Amazon Q
Andy Jassy: "Q doesn't just generate code, it also tests code, debugs coding conflicts, and transforms code from one form to another. [...] Developers can simply ask Amazon Q to implement an application feature such as asking it to create an add to favorites feature in a social sharing app, and the agent will analyze their existing application code and generate a step-by-step implementation plan."