Amazon Q2 2024 Earnings Analysis
Dive into $AMZN Amazon’s Q2 2024 earnings with review of financial performance, key metrics, operating expenses, dilution, customer growth, future outlook
Financial Results:
↘️$147.98B rev (+10.1% YoY, 12.5% LQ) missed est by -0.4%🔴
↗️Operating Margin (9.9%, +4.2%pp YoY)
↗️FCF Margin, TTM ( 8.8%, +7.3%pp YoY)🟢
↗️Net Margin (9.1%, +4.1%pp YoY)
↗️EPS $1.26 beat est by 23.5%
Segment Revenue
➡️Net product sales $61.57B rev (+4.3% YoY)🟡
↗️Net service sales $86.41B rev (+14.7% YoY)
AWS
↘️AWS Revenue $26.28B rev (+18.7% YoY)🟢
↗️Operating Margin (35.5%, +11.3%pp YoY)
Dilution
↗️SBC/rev 5%, +1.1%pp QoQ
↗️Basic shares up 1.6% YoY, +0.2%pp QoQ
↘️Diluted shares up 2.5% YoY, -0.6%pp QoQ
Guidance
➡️Q3'24 $154.0 - $158.5B guide (+9.2% YoY) in line with est
Key points from Amazon’s Second Quarter 2024 Earnings Call:
Financial Results:
Amazon reported $148 billion in revenue, up 11% year-over-year, with operating income significantly increasing to $14.7 billion, up 91% from the previous year.
AWS (Amazon Web Services):
AWS revenue growth increased to 18.8% year-over-year. This growth is attributed to companies refocusing on innovation and moving from on-premises infrastructure to the cloud.
The growth in AWS is fueled by three main trends: a shift back to infrastructure modernization, increasing adoption of the cloud over on-premises solutions, and leveraging AI technologies.
Amazon emphasizes providing customers with multiple options including their own custom silicon solutions like Trainium and Inferentia, which improve cost-efficiency for AI workloads.
Generative AI:
AWS sees Generative AI as a significant growth area, supported by investments in custom AI chips and tools like Amazon SageMaker for easier model management.
Amazon Bedrock:
This platform provides a wide selection of AI models and capabilities crucial for tasks like model evaluation and generative AI guardrails, catering to customers who prefer pre-built AI models over developing their own.
Amazon Q:
A sophisticated AI-powered assistant for software development that not only suggests code but also tests it, detects security vulnerabilities, and connects multiple coding steps. It has been instrumental in automating and accelerating tasks like upgrading software frameworks, significantly reducing time and costs.
Project Kuiper:
Amazon is ramping up its efforts in manufacturing satellites for Project Kuiper, with plans to start shipping production satellites by the end of the year. This project aims to create a low-Earth orbit satellite constellation to provide broadband internet globally, particularly targeting underserved areas.
A distribution agreement with Vrio, which distributes Direct TV Latin America and Sky Brazil, has been announced.
There is significant demand from enterprise and government entities for Project Kuiper's services, indicating strong potential for growth and impact in these sectors.
Advertising:
Advertising continues to drive substantial revenue, with Amazon noting an over $2 billion year-over-year increase in this segment.
Amazon highlighted its success at the upfronts, indicating strong interest from advertisers in integrating ads with streaming content to directly drive business outcomes like product sales or subscriptions.
Prime Video:
Prime Video is gaining traction through exclusive shows, movies, and an expansion into live sports, enhancing its appeal to a broad audience.
Amazon is investing heavily in Prime Video, seeing it as a critical component of its ecosystem that drives engagement and supports other revenue streams like advertising.
Challenges:
Amazon noted macroeconomic challenges, including consumer price sensitivity and trading down to lower-cost products, affecting average selling prices and margins in its North America stores business.
The company is managing the balance between continued investment in growth areas like AWS and Project Kuiper and the need to maintain profitability in its core retail operations.
Stores Business:
Amazon’s North America and International segments saw growth due to its continued focus on selection, low prices, and delivery speed. However, average selling prices were lower due to economic pressures and consumer price sensitivity.
Amazon is actively working to lower its cost to serve by optimizing inventory placement and delivery logistics. Efforts include expanding the use of automation and robotics, building out its same-day facility network, and regionalizing its inbound network to enable faster delivery speeds and more consolidated orders.
The regionalization of the inbound network is expected to reduce transfer times and costs, helping to consolidate more orders into single shipments and improve overall customer experience.
Future Outlook:
Looking ahead, Amazon expects continued growth and investment, particularly in AWS and AI technologies. The company remains focused on enhancing customer experiences and expanding into new business areas like satellite broadband services.
Management comments on the earnings call.
AWS (Amazon Web Services):
Andy Jassy, CEO: "AWS's growth is now primarily driven by companies focusing again on modernizing their infrastructure... With the broadest functionality, the strongest security and operational performance, and the deepest partner ecosystem, AWS continues to be customers' partner of choice."
Advertising:
Andy Jassy, CEO: "We've added over $2 billion in advertising revenue year-over-year... Sponsored ads drive the majority of our advertising revenue today and we see further opportunity there."
Prime Video:
Andy Jassy, CEO: "Prime Video continues to evolve into the best destination for streaming video... Our storytelling is resonating with our hundreds of millions of monthly viewers worldwide, and the 62 Emmy nominations Amazon MGM Studios recently received is another supporting data point."
Challenges:
Brian Olsavsky, CFO: "Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, and customer demand and spending."
Stores Business:
Andy Jassy, CEO: "Our North America unit growth is meaningfully outpacing our sales growth as our continued work on selection, low prices, and delivery is resonating. So far this year, our speed of delivery for prime customers has been faster than ever before, with more than 5 billion units arriving the same day or next day."
Future Outlook:
Andy Jassy, CEO: "There's a lot to feel optimistic about over the next several years and the team collectively remains focused on continuing to invent and deliver for our customers in the business."
Brian Olsavsky, CFO: "We remain heads down, focused on driving a better customer experience. We believe putting customers first is the only reliable way to create lasting value for our shareholders."