Amazon.com, Inc. (AMZN) on Q1 2022 Results - Earnings Call Transcript
Operator: Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Q1 2022 Financial Results Teleconference. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's call is being recorded. For opening remarks, I will be turning the call over to the Director of Investor Relations, Dave Fildes. Please go ahead. Dave Fildes: Hello, and welcome to our Q1 2022 financial results conference call. Joining us today to answer your questions is Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2021. Our comments and responses to your questions reflect management's views as of today, April 28, 2022, only and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, labor market and global supply chain constraints, world events, the rate of growth of the internet, online commerce and cloud services and the various factors detailed in our filings with the SEC. This guidance also reflects our estimates to date regarding the impacts of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC. Our guidance also assumes, among other things, that we don’t conclude any additional business acquisitions, restructurings or legal settlements. It’s not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now, I’ll turn the call over to Brian. Brian Olsavsky: Thank you for joining today's call. I'd like to start with a few comments on what we're seeing as we're coming out of the pandemic, both on the customer experience side and on the operating cost side in this current inflationary environment. Let's start with demand and customer experience. Worldwide net sales in Q1 were $116.4 billion, an increase of 9% year-over-year, excluding the impact of foreign exchange. This is the top end of our guidance range of $112 billion to $117 billion. Our compound annual growth since before the pandemic stands at 25%, a growth rate higher than what we were seeing before the pandemic. Our prime members continue to be a key driver of growth. Prime members have meaningfully increased their spend since the start of the pandemic, and we continue to see consistently high member renewal rates. We also added millions more new Prime members during the quarter. Throughout the past two years, we've seen stronger usage of Prime benefits by Prime members and a greater reliance on Amazon for their shopping and entertainment. In the first quarter, we made encouraging progress on key customer metrics. Delivery speed performance is now approaching levels not seen since the months immediately preceding the pandemic in early 2020. And we now have the widest selection ever available for Prime's fast delivery. We have worked to protect and enhance the customer experience despite a sharp increase in costs, particularly over the past three quarters. We've seen a large cost to keep up with demand these past two years. During this period, we doubled the size of our operations and nearly doubled our workforce to 1.6 million employees. Labor and physical space are no longer the bottlenecks they were throughout much of 2020 and 2021. However, we continue to face a variety of cost pressures in our consumer business. We'll break these into two buckets, externally driven costs, primarily inflation; and internally controllable costs, primarily productivity and fixed cost deleverage. The externally driven costs are a result of intensifying inflationary pressures throughout Q1. Line haul air and ocean shipping rates continue to be at or above the rates in the second half of last year, which were already much higher than pre-COVID levels. Some of this is due to the impact of the Omicron variant in China and labor shortages at point of origin, and the start of the war in the Ukraine has contributed to high fuel prices. For example, the cost to ship in overseas containers more than doubled compared to pre-pandemic rates. And the cost of fuel is approximately 1.5 times higher than it was even a year ago. Combined with the year-over-year increases in wage inflation, these inflationary pressures have added approximately $2 billion of incremental costs when compared to last year. While we will continue to look for ways to mitigate these costs, we expect they will be around for some time. The next bucket of costs related to productivity and fixed cost leverage, which we consider to be more within our control and are working to reduce. These additional costs correspond to the state of the labor force and fulfillment network following two years of disruption and large demand variability. We now look forward to more predictability in our consumer order patterns and greater stability in our operations. Let's start with labor. As a reminder, in the second half of 2021 we were operating in a labor-constrained environment. With the emergence of the Omicron variant in late 2021, we saw a substantial increase in fulfillment network employees that on leave, and we continue to hire new employees to cover these absences. As the variant subsided in the second half of the quarter and employees returned from leave, we quickly transitioned from being understaffed to being overstaffed, resulting in lower productivity. This lower productivity added approximately $2 billion in costs compared to last year. In the last few weeks of the quarter and into April, we've seen productivity improvements across the network, and we expect to reduce these cost headwinds in Q2. The last issue relates to our fixed cost leverage. Despite still seeing strong customer demand and expansion of our FBA business, we currently have excess capacity in our fulfillment and transportation network. Capacity decisions are made years in advance, and we made conscious decisions in 2020 and early 2021 to not let space be a constraint on our business. During the pandemic, we were facing not only unprecedented demand, but also extended lead times on new capacity. And we built towards the high end of a very volatile demand outlook. Now that demand patterns have stabilized, we see an opportunity to better match our capacity to demand. We have lowered our operations, capital expenditures for 2022 and are evaluating other ways to increase our fixed cost leverage. We estimate that this overcapacity, coupled with the extraordinary leverage we saw in Q1 of last year, resulted in $2 billion of additional costs year-over-year in Q1. We do expect the effects of these fixed cost leverage to persist for the next several quarters as we grow into this capacity. When you combine the impacts of the externally driven costs and the internally controllable costs, you get approximately $6 billion in incremental costs for the quarter. Approximately two-thirds of these costs are within our control. And with demand normalizing, we remain focused on rightsizing our cost structure and driving out any cost inefficiencies. Our guidance includes an expectation that we will incur approximately $4 billion of these incremental costs in Q2. We saw another strong quarter of innovation and customer engagement in the AWS segment where net sales were $18.4 billion in Q1, up 37% year-over-year and now represent an annualized sales run rate of nearly $74 billion. Developers at organizations of all sizes from governments and not-for-profits to start-ups and enterprises continue to choose Amazon Web Services. Companies like Telefonica, Verizon, Boeing, MongoDB, Amdocs, Bundesliga, Maple Leaf Sports & Entertainment, the NHL and Thread announced new agreements and service launches supported by AWS. We also continue to build support infrastructure to best serve AWS' millions of customers. We recently completed the launch of our first 16 local zones in the United States with 32 more to come across 26 countries. Local zones extend AWS regions to place our services at the edge of the cloud near large population, industry and IT centers, expanding our infrastructure footprint and enabling customers to build with single-digit millisecond latency performance. Last quarter, I provided some detail on our overall capital investments. So, let me add to that with our current thinking. First, as a reminder, we look at the combination of CapEx plus finance leases. Capital investments were $61 billion on the trailing 12-month period ended March 31st. About 40% of that went to infrastructure, primarily supporting AWS but also supporting our sizable consumer business. About 30% is fulfillment capacity, primarily fulfillment center warehouses. A little less than 25% is for transportation. So, think of that as the middle and last-mile capacity related to customer shipments. The remaining 5% or so is comprised of things like corporate space and physical stores. For full year 2022, we do expect infrastructure spend to grow year-over-year, in large part, to support the rapid growth in innovation we're seeing within AWS. We expect infrastructure should represent about half of our total capital investments in 2022. For the consumer business, as I said earlier, we currently have some excess capacity in the network that we need to grow into. So, we've brought down our build expectations. Note again that many of the build decisions were made 18 to 24 months ago, so there are limitations on what we can adjust midyear. That said, we expect fulfillment dollars spent on capital projects to be lower in 2022 versus the prior year. We also expect transportation dollars spent on capital projects to be flat to slightly down. Finally, I'll highlight a few additional items. We reported an overall net loss of $3.8 billion in the first quarter. While we primarily focus our comments on operating income, I'd point out that this net loss includes a pretax valuation loss of $7.6 billion, included in nonoperating expense from our common stock investment in Rivian Automotive. You may remember that we had a $12 billion gain on Rivian in Q4. We also provided our second quarter financial guidance as part of our earnings release. As a reminder, our comparable period of Q2 2021 included the continuation of extraordinary net sales growth in roughly the first half of that quarter. That began to moderate in the second half as vaccines became more readily available in many countries and people started getting out of their homes. In addition, note that this year's Prime Day sales event will occur in the third quarter, in July to be specific. Last year, in 2021, Prime Day occurred in the second quarter. Prime Day contributed about 400 basis points to our Q2 2021 year-over-year revenue growth rate. Lastly, as you look at our Q2 operating income guidance, a reminder that we will see our seasonal step-up in stock-based compensation expense as our employees receive annual restricted stock unit grants in the second quarter. This year, we expect to see stock-based compensation expense of approximately $6 billion, up from $3.3 billion in Q1, largely reflecting wage inflation as we continue to hire and retain employees in high-demand areas, including engineers and other tech workers. With that, let's move on to your questions. Operator: Our first question comes from Mark Mahaney with Evercore ISI. Mark Mahaney: Okay. Thanks. I want to ask two questions, please. In terms of the revenue guide for the June quarter, I think it sort of implies about 3%. And if you look sequentially and if you look back at the last couple of years, the non-COVID years, the growth has been between 4% and 6%. Are you seeing signs softness or weakening? Is there any particular factor that would be -- cause your sequential growth to be lower than typical? And then briefly on the margins for Q2. So, you got $4 billion in kind of these incremental costs versus $6 billion in the March quarter, but yet your guidance year-over-year implies kind of the same sort of year-over-year margin decline, about 500 bps. Could you just explain that a little bit? Thanks. Brian Olsavsky: Hi Mark. How are you doing? On revenue, yes, the revenue guidance we've given is kind of our best view of what we're seeing right now. Customer demand does remain strong. We're seeing, again, continued strength in Prime purchases, Prime commitment, levels of usage, benefits being used, et cetera. And the big part of the year-over-year comp is that we're comping the last part of the very elevated year-over-year step-up that lasted about half of last year's second quarter, and then we move Prime Day to Q3. So, we're not seeing softness. We're cognizant of the current inflationary environment and the impact it has on consumer -- or excuse me, the household budgets, a lot of times that is a time when -- and people come to Amazon because they know we have great prices and selection and convenience. So, it can go one of two ways. But we don't see any macroeconomic factors generally in this forecast on the demand side. We definitely see it on the cost side. Dave Fildes: And Mark, I think your second question was related to the operating income guidance and some of the detail there. So, as Brian said, the first time we've given the guidance for the second quarter. But you detailed a number of pieces, but like you said, expect to see, in aggregate, about $4 billion of pressure for the 3 buckets that Brian talked about, higher inflationary pressures, lower productivity and some fixed cost deleverage persisting into Q2. So, that will be at some lower levels as we aim to and kind of expect to see some improvement in productivity, some of those other areas. We're also committed to just generally reducing variable cost per unit and working to lever our fixed costs, specifically where we have those controllable cost buckets Brian spoke about. The other thing -- again, Brian mentioned it towards the end there of this opening -- to see that seasonal step-up in stock-based compensation expense. So, recall that our employees received those RSU grants in the second quarter. This year, we expect to see the expense of approximately $6 billion. And so, that's up from about $3.3 billion in the first quarter. Operator: Our next question comes from Justin Post with Bank of America. Justin Post: Big picture, Amazon hasn't really been around during a period of high inflation. How do you think about passing through the higher input costs through pricing? When you look at your units, they're flat and you're just not seeing any price increases in there. I know FX is a headwind, but how do you think about passing that through? And when can we start to see that? And then, second question, it looks like your shipping costs are up 14% versus units flat, probably makes sense with the input costs. But we would expect some savings as you bring a lot of that transportation in-house, a lot of the delivery in-house. Is -- are you seeing savings there? And how do you think about shipping costs versus units? Thanks. Brian Olsavsky: Sure. Let me make a comment on units first. If we step back, the first year of the pandemic from -- essentially from our world from the middle of May 2020 to May 2021, we saw high growth. We went from a 20% growth rate in revenue to a 40% growth rate almost overnight and held it for a year. And then, we started to lap that for the last year that will essentially end in the middle of this next month. And so, I noted step-downs in the run rate as soon as the middle of May hit last year. So, on units though, units grew during that -- instead of jumping from -- to 40%, they jumped to the mid-40% to 50% range, mainly because of the product mix, people were buying a lot more gloves and cleaning agents and all the things tied to the pandemic. So, there's a lot of -- you have to look at the unit data with keeping that in mind because there's a mix -- heavy mix issue. But putting all that aside, you asked the question about transportation shipping rates. Our shipping rates are very competitive, and we are seeing savings versus what we would get from external carriers. And it's beyond that. We would not even necessarily have had the capacity to -- from external third-party providers to handle the transportation loads that we've seen in the last couple of years. So, we're really glad that we have our -- as we built our AMZL network, we would not be able to have a one-day program, same day and one-day shipments, if we try to deliver it with third-party shippers. It just would not be cost effective. So, what you're seeing there in the growth in shipping costs versus the unit growth, a little bit on the unit side, but essentially a factor of inflation and productivity that I've mentioned to you on the component that hits in the transportation area. Dave Fildes: Justin, on your second point regarding inflation, of course, we've talked about we're not immune to inflationary pressures on the cost side and with the ongoing supply chain disruptions and the start of the war in the Ukraine since our last quarter. We see larger impacts of inflation, some line haul, shipping rates, fuel shipping supplies and wages, which we talked about in some recent quarters as well. And we also see some volatility in utility pricing for some of the energy costs in operating the AWS data centers. Now, when you look at costs for customers and sellers in terms of product pricing, I just reinforce our pricing philosophy hasn't changed. We aim to offer low competitive pricing and try to stay on top of that pricing environment and make sure we're delivering a great price for customers. For our 1P business, that means continuing to be really competitive in that space with low prices relative to the reputable competitors out there and staying really close to that on the data. For third party, we don't control that price that's set by third-party sellers. So, they're running their own businesses and we'll adjust the pricing to account for inflationary costs in their environment as well. And of course, on pricing and another other many other services with sellers, we offer services to help them not only handle with logistics, but also get better pricing information to make sure that they're staying on top of that as well. So, wherever we can help them, we do that. We did increase some fees effective, I believe, is today related to the FBA sellers and some surcharge there. We're focused on, of course, addressing permanent costs and ensuring our fees are competitive versus those charged out there by their sellers. But it's still unclear if the inflationary costs will go up or down and so -- and for how long they'll persist. So, rather than a permanent fee change, we implemented that fuel and inflation surcharge for the first time. And it's, of course, a mechanism that's broadly used across the supply chain providers that are out there already, but it's the first time that we've done something like this. Operator: Our next question comes from Brian Nowak with Morgan Stanley. Brian Thomas: Great. Thanks for taking my questions. I have two. First one, Brian, I want to ask you about one day, same day. Now that you're getting inventory selection, SKU selection in some cases back to where it was pre-pandemic. What are you seeing from a demand or an elasticity perspective as you get more inventory available for one day, same day? Is it really leading to incremental sales based on your data? And the second one, I want to ask about tech and content. It came in a little higher despite AWS costs coming in lower. Is there anything else we should sort of be thinking about in our modeling in tech and content, whether it's Kuiper or other items that are moving through that line item for the year? Brian Olsavsky: Let me start with your first question on one day and same day. Yes, we're approaching the service levels that we had pre-pandemic, and that's a positive sign. But this doesn't -- it doesn't turn on a dime, I think as a consumer, I noticed it myself, I see more things in stock. And I -- it opens up the consideration set for things that I may have had to run to a store to get in a short period of time. And that trust and -- as you see more and more of that, you trust it and you continue to order and you then go to Amazon first and say, okay, well, it's maybe my first stop before I even think about going to the store. So, it's a -- it has to be built over time. It doesn't take years. It takes hopefully, weeks and months. But we're hopeful and expecting that that will add to good elasticity, the same elasticity is that we start to see prepandemic? Dave Fildes: On the second point, the technology and content. Just as a reminder, components in there is you got the Amazon Tech and the AWS infrastructure, so everything from servers, network and equipment, data center-related depreciation, rent utilities, those types of things. The AWS Tech employee costs and costs to support the dotcom website and a number of other technology initiatives that we're working on. For Q1, it was up about 19% year-over-year, which was down a little bit, less than what you see for year-over-year growth throughout 2021. That growth rate, though, does, of course, include an offset Q1 2022 related to a partial offset, I should say, related to the change in estimated useful lives for servers, which was a little under $1 billion of impact in the first quarter. In terms of just the investment areas, I just reinforced it, it’s continued investment in the tech infrastructure. One of the bigger pieces remains AWS, of course, there. And then, just broadly speaking, inclusive of AWS, the headcount to support -- the build-out and support that the AWS team is doing as well as some consumer tech teams, Alexa and Echo devices and certain other areas there. Operator: Our next question comes from Doug Anmuth with JP Morgan. Doug Anmuth: Thanks for the question. You talked about how you're no longer chasing physical or staffing capacity and, in fact, you're actually running at in excess at the moment. So, hoping you could talk a little bit about how long you think it could take to regain some of the productivity and cost efficiencies in the fulfillment network. Thank you. Brian Olsavsky: Sure thing. Well, let me start with productivity. We began and ended the quarter with essentially 1 billion -- excuse me, 1.6 million employees, 1.6 million employees, mostly -- most of them, of course, are in operations. During the quarter, we had a peak of 1.7 million, and we were able to work that down by the end of the quarter. So, we have certain ability with contractors and all to adjust headcount. But for the most part, our employees are what we call blue badges or permanent Amazon employees. And now, we work on getting productivity up. It's a combination of productivity at the employee level, but it's also a matter of productivity of the -- and harmonization of the network, having the right demand in the right -- excuse me, the right capacity and the right demand matched at the warehouse level and the transportation node level. So, that's what we're working on. And we've made good strides in the last month, and we're -- we see a line of sight to getting back, not all the way to prepandemic rates in the next quarter or two, but a good bit of the way. And that's what we're firmly focused on and working on, and that's in the warehouses and also in transportation. Is there a second half to that question? Okay. Go ahead. Operator: Our next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Thanks for taking the question. And I hope you're both well. Maybe if I could, just sticking on the capacity issues for a minute. In terms of the $4 billion number you're calling out, maybe the first part of the question would be, is that entirely the additional issues that are now front and center versus the issues we talked about from Q4 into first half of '22 from a logistics and supply chain standpoint where we had talked about permanent versus transient cost nature of that $4 billion as you move through the first half of the year? So, is this above and beyond that and above and beyond some of the lingering COVID costs that you had called out in prior periods? Just wanted to unpack some of the stack build of the $4 billion versus thing we already knew before. And then, maybe following up on Doug's question and asking it a little bit differently. When you look out to the back part of the year, not asking for how you might guide. But there's a typical cadence to fulfillment expense build and employee build and headcount build into the back part of the year as you build the capacity towards the holidays. Will that have a very different cadence to it this year because you find yourself with this much excess capacity at Q1, Q2 versus prior years, just so we can keep that front of mind? Thanks so much. Brian Olsavsky: Sure thing. Good questions, Eric. Let me start with the cost penalties. So, in Q4, we did mention $4 billion of cost penalties and drag on that quarter. And $1 billion of that was fixed cost deleverage, principally a combination of having enough space and having super high leverage in the prior year when we were chasing volume and had less space. And we indicated that that would be carrying over into 2022 and it has. From a productivity standpoint, our issues in the second half of last year were different. They were -- we didn't have as much labor, even though we added, I believe, was 200 -- I have it right here, 270,000 workers in the second half of last year. We were chasing labor and it was creating much disruption within our network. Long zone shipments, half full trucks, all kinds of negative consequences of not having labor, but we made it through Q4 with the anticipation that we'll be able to hold our labor for Q1 and labor certainty would be a lot better and certain in our network. That is still the plan, and we're probably a couple of months late on that because of some of the issues with Omicron in January. And our reaction to it was that uncertain labor environment where a lot of people were on leave. We hired more people and then found ourselves overstaffed when the Omicron variant subsided rather quickly, at least from our standpoint in warehouses. So, the issue is switched from disruption to productivity losses to overcapacity on labor. And we believe that that will dissipate. It will take time in Q2, but -- so it's not the full -- we don't get the full $2 billion back in Q2, but we will make great strides on that. Inflation has been in both periods. Inflation was in the transportation costs, especially in wage inflation last year. It remains there. It's been amplified a bit by the fuel costs following the Ukraine conflict, which has happened since we last spoke. So, it's more a factor -- those costs will now, we believe, will persist a little longer than we were hoping at the beginning of the year. And I mentioned some of the per unit rates for transportation, cargo shipments and also fuel costs. Those are real, and we have to find ways to offset those or use less of high-cost things, like transportation and fuel. So, we're working on that. As we progress, there's only guidance for Q2. But what we see is that the fixed cost deleverage will narrow as we go through the year, and we'll be really glad we have this capacity in Q3 when Prime Day hits because that's always a big surge of both, inventory and orders, and then definitely in the holiday season. So, we will -- the way we see it as we've come out of a very tumultuous two years. We are glad we made the decisions we made over the past two years. And now we have a chance to more rightsize our capacity to a more normalized demand pattern. So, what's left there is really inflation, and that's what we're working on and evaluating and finding ways to mitigate and in some cases, having to pass some of the costs through to third-party sellers as well so that we're not subsidizing sales there. And then, we will see. So, we expect the year-over-year revenue comps to improve in the second half of the year because, again, we're passing this year of super high growth that I mentioned before from May of 2020 to May of 2021. But, it's not like the volume has receded. Like, in Q1 literally, where revenue 61% higher over two years from 2020. So the way to think about it is it went up and stayed up and now it's -- it will resume a more normal growth pattern. But I wouldn't be full by the revenue growth rates in this difficult comp period. Operator: Our next question comes from Ross Sandler with Barclays. Ross Sandler: So, the letter mentioned some impacts post the Ukraine invasion. I'm guessing it's mostly on the inflation and the fuel costs just mentioned. But any comment about how revenue trajectory compared in March after the conflict started versus before across your geographies? And is there any noticeable difference between Prime member volume and non-Prime? Thanks a lot. Brian Olsavsky: Yes. Hi Ross. No, I would say there's not a lot of Prime versus non-Prime differential. We had what we consider to be a very strong March. It's very hard to compare year-over-year because March last year was the height of some stimulus payments in the United States. But from kind of a sequential period, we thought March was strong. So, there's no indicators that we're seeing of weakness in consumer demand, but we're wary of it as probably all companies are because household budgets are tightened when fuel costs are doubling and a big part of your -- it ripples through food, it ripples through everything else. So, we're cognizant of that. But what we'll focus on is the customer experience, continue to get our delivery times to be better and increasing selection, which is better than pre-pandemic time period and you're making the customer experience great on a lot of dimensions. Operator: Our final question comes from Jason Helfstein with Oppenheimer. Jason Helfstein: Thanks. Two questions. Just can you talk about advertising a bit? Are you seeing supply chain disruption having any impact on advertising? Just any comments there? And then, second, I don't think AWS backlog was asked. If there's any numbers you can share on AWs backlog growth this quarter versus last quarter. Thanks. Dave Fildes: Yes. Jason, I'll take the second one first, just on the backlog. So, yes, I mean, we're continuing to see what the backlog is, right? It's the increase of AWS customers making long-term commitments for AWS. At the March period ended, we had $88.9 billion balance for that. So, that's up about 68% year-over-year. And the weighted average remaining kind of life term for those is 3.8 years. Brian Olsavsky: And on revenue -- excuse me, advertising revenue was up 25% year-over-year, and that's a strong run rate compared to the revenue growth rate. So, we're still very happy and pleased with the way the advertising team is performing and how advertising has been valued by both, sellers and vendors and others who use it to reach our customer base at the point where they're considering purchases. So, a strong quarter and continue to roll out new and new products for sellers to manage their advertising and increase the ability to analyze and calculate the payback on marketing investments with us. Dave Fildes: Thanks for joining us today on the call and for your questions. A replay will be available on our Investor Relations website for at least three months. We appreciate your interest. And we look forward to speaking with you again next quarter.
Amazon (NASDAQ:AMZN) Director Sells Shares Amidst AI Integration Challenges and Fee Stabilization
- Daniel P. Huttenlocher, a director at Amazon, sold 1,237 shares at $199.06 each, retaining 24,912 shares.
- Amazon faces challenges in enhancing Alexa with advanced AI features due to integration complexities.
- The company announced it will not increase its merchant fulfillment and referral fees in 2025, attributing this decision to cost reductions through innovation and efficiency.
On November 19, 2024, Daniel P. Huttenlocher, a director at Amazon (NASDAQ:AMZN), sold 1,237 shares of the company's Common Stock at $199.06 per share. This transaction leaves him with 24,912 shares. Amazon, a global e-commerce and technology leader, faces competition from companies like Walmart and Alibaba. Despite challenges, Amazon remains a dominant force in the market.
Amazon is currently facing hurdles in enhancing Alexa with advanced AI features. The company has experienced delays in launching the new AI-powered version due to integration complexities with partners like Uber and Ticketmaster. These challenges highlight the intricate nature of developing cutting-edge technology, which is crucial for maintaining Amazon's competitive edge.
Despite these challenges, Amazon has announced it will not increase its merchant fulfillment and referral fees in 2025. As highlighted by PYMNTS, this decision comes despite inflation and significant investments in employee pay and benefits. Amazon attributes this to cost reductions achieved through innovation, efficiency, and defect reduction, benefiting sellers on its platform.
In addition to its e-commerce operations, Amazon is involved in innovative projects like SENSICALMATCH.AI™, a collaboration with Common Sense Networks and Deloitte. This platform, powered by Amazon Web Services (AWS), aims to enhance safe advertising for children. This initiative underscores Amazon's commitment to leveraging technology for safety and innovation.
Amazon's stock price is currently $204.61, reflecting a 1.44% increase. The stock has traded between $198.80 and $205.30 today, with a market capitalization of approximately $2.15 trillion. Over the past year, the stock has seen a high of $215.90 and a low of $141.50, with a trading volume of 30,846,395 shares on the NASDAQ.
Amazon Shares Jump 7% on Strong Q3 Results
Amazon.com (NASDAQ:AMZN) reported third-quarter earnings that exceeded analyst expectations, pushing its stock up over 7% intra-day today. The tech giant's performance was boosted by growth in artificial intelligence, particularly within its cloud division.
Amazon posted adjusted earnings per share of $1.43, beating the forecasted $1.14, and reported revenue of $158.9 billion, surpassing estimates of $157.25 billion and marking an 11% year-over-year increase.
CEO Andy Jassy highlighted "once-in-a-lifetime" opportunities emerging from generative AI, which has spurred an uptick in cloud demand as businesses ramp up investment in the necessary infrastructure. Amazon Web Services (AWS) saw a substantial lift, with sales jumping 19% to $27.5 billion. Jassy noted that AI-driven operations within AWS were experiencing "triple-digit" growth.
The surge in AI demand, however, has led Amazon to significantly boost capital expenditures on data centers and networking, with $75 billion planned for this year and even higher spending expected in 2024.
Amazon’s AI-powered shopping assistant, Rufus, expanded to additional markets, while new AI tools were rolled out for sellers and advertisers, enhancing the company’s offerings as it heads into the holiday season. North American sales rose 9% to $95.5 billion, with international sales up 12% to $35.9 billion. Amazon's operating margin reached a record 11%, with AWS margins hitting an all-time high of 38%.
For the fourth quarter, Amazon projected revenue between $181.5 billion and $188.5 billion, just below the midpoint of Wall Street analysts' $186.36 billion estimate. The company forecasted Q4 operating income between $16.0 billion and $20.0 billion.
Wells Fargo Downgrades Amazon to Equal Weight, Stock Drops 3%
Amazon.com (NASDAQ:AMZN) shares fell nearly 3% intra-day today after Wells Fargo analysts downgraded the company to Equal Weight from Overweight, lowering their price target to $183 from $225. The analysts pointed to several near-term pressures that could impact Amazon's operating income, including continued investment in Project Kuiper, anticipated challenges in Fulfillment by Amazon (FBA) fees, and a slowdown in advertising operating income growth.
The analysts adjusted Amazon’s operating income estimates downward by $5.4 billion, $4.5 billion, and $5.5 billion for 2025, 2026, and 2027, respectively, reflecting reductions of 7%, 5%, and 5%. They noted that while the market is bracing for fourth-quarter margin impacts, first-half 2025 margin expansion may also be limited. The analysts remain cautious until visibility around Amazon’s margin expansion improves.
They highlighted growing competition from Walmart, whose expanding fulfillment services and competitive pricing in third-party merchant logistics could limit Amazon's FBA fee growth. Wells Fargo estimates Amazon’s FBA fee inflation may see a decline of around $2 billion annually if inflation remains closer to 2024 levels. Additionally, the analysts see merchant advertising growth slowing as it has already reached 6% of gross merchandise volume (GMV) in 2024, up from 3.7% in 2020, with expectations for more modest growth going forward.
Amazon’s ad revenue may also face cost pressures from high-profile content rights, including anticipated NBA-related expenses in 2025.
JMP Securities Raises Amazon Price Target to $265, Highlights Advertising Growth Potential
JMP Securities analysts raised their price target for Amazon.com (NASDAQ:AMZN) to $265, up from $245, while maintaining a Market Outperform rating on the stock.
The analysts highlighted Amazon's robust advertising capabilities, driven by its vertically integrated, full-stack advertising platform that spans from upper to lower funnel solutions. They emphasized that Amazon's Prime membership provides unmatched data and attribution capabilities, giving it a competitive edge in the advertising space.
JMP also noted that Amazon's connected TV (CTV) advertising has lower ad loads and costs compared to competitors. The analysts project that Prime Video will generate nearly $2 billion in revenue from advertising in 2024, with potential for further growth as ad load and cost-per-thousand impressions (CPMs) increase alongside viewing hours, bolstered by live sports licensing agreements.
Additionally, the analysts believe Amazon will eventually extend its ad-tech and data capabilities to the broader web, creating new revenue opportunities within its Advertising Services business.
Amazon Stock Analysis: What 5 Analysts Are Saying After Earnings
Amazon Stock Analysis: What 5 Analysts Are Saying After Earnings
Amazon’s recent earnings report has sparked significant discussion among analysts. Here’s a summary of the key insights from five analysts regarding Amazon’s stock performance and future outlook:
1. Investment in Growth
Many analysts highlight that Amazon’s recent spending is crucial for future growth. As the saying goes, “You have to spend money to make money,” and Amazon’s investment in expanding its services and infrastructure is seen as a strategic move to sustain long-term growth.
2. Earnings Performance
Amazon’s earnings report revealed mixed results. While the company posted strong revenue growth, its profit margins were impacted by higher operational costs. Analysts are closely examining these results to gauge the company's profitability and efficiency.
3. Strategic Initiatives
Analysts emphasize that Amazon’s investments in new technologies and market expansions are positioning the company for future success. The focus on cloud computing, logistics, and artificial intelligence is expected to drive significant revenue growth.
4. Market Position
Amazon’s dominant position in e-commerce and cloud services continues to be a major advantage. Analysts are optimistic about the company’s ability to leverage its market leadership to maintain competitive edges and capture more market share.
5. Future Outlook
Looking ahead, analysts are cautiously optimistic about Amazon’s prospects. The company’s commitment to innovation and customer-centric strategies is expected to pay off, though short-term challenges and market conditions could impact performance.
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Amazon's Q2 Earnings Top Forecasts, But Softer Q3 Guidance Sends Shares Down 8%
Amazon (NASDAQ:AMZN) reported strong second-quarter earnings that exceeded analyst expectations, but the company's stock dropped 8% intra-day today due to weaker-than-anticipated guidance for the upcoming third quarter.
For Q2, Amazon posted adjusted earnings per share of $1.26, significantly beating the analyst estimate of $1.03. Revenue for the quarter was $148.0 billion, slightly below the Street estimate of $148.68 billion but reflecting a 10% year-over-year increase from $134.4 billion in the same period last year.
However, Amazon's third-quarter revenue guidance of $154-158.5 billion fell short of analyst expectations of $158.2 billion, contributing to the stock's decline.
Amazon President and CEO Andy Jassy emphasized the company's progress, particularly noting the continued growth in Amazon Web Services (AWS). AWS reported sales of $26.3 billion, up 19% year-over-year, showcasing its strength within the company's portfolio. The North America segment saw a 9% increase in revenue to $90.0 billion, while the International segment grew by 7% to $31.7 billion, or 10% when excluding foreign exchange impacts.
Amazon's operating income more than doubled to $14.7 billion, compared to $7.7 billion in the second quarter of 2023, highlighting significant improvements in profitability.
Amazon (NASDAQ:AMZN): A Comprehensive Financial Analysis
- Despite a slowdown in quarterly revenue growth and a decline in gross profit growth, Amazon's financial foundation remains robust with total revenue hitting $574 billion in 2023.
- The company's operating income growth has seen a notable increase, suggesting efficient management of operational costs and investments, particularly in high-margin segments like AWS.
- Amazon's enterprise value to EBITDA valuation ratio of 19, significantly below its five-year average, suggests the stock might be undervalued, presenting a compelling opportunity for investors.
NASDAQ:AMZN, commonly known as Amazon, is a global powerhouse in both e-commerce and cloud computing. The company's journey from an online bookstore to a behemoth that spans various sectors, including Amazon Web Services (AWS), artificial intelligence (AI), and more, showcases its innovative capabilities and aggressive expansion strategy. Despite facing a recent slowdown in quarterly revenue growth by about 15.68% and a decline in gross profit growth by approximately 8.69%, Amazon's financial foundation remains robust, with total revenue hitting $574 billion in 2023.
The decrease in Amazon's net income growth by roughly 1.82% might raise eyebrows among investors. However, the company's operating income growth tells a different story, with a notable increase of nearly 19.69%. This suggests that Amazon is efficiently managing its operational costs and investments, particularly in its high-margin segments like AWS, which significantly contributes to the company's operating profits. AWS's success, driven by its involvement in the AI boom, underscores Amazon's ability to innovate and capture lucrative market opportunities.
Despite the challenges reflected in the company's financial metrics, such as a significant decline in free cash flow growth by about 85.42% and a decrease in operating cash flow growth by roughly 55.28%, Amazon's strategic investments and diversified business model position it for long-term growth. The modest asset growth of approximately 0.59% and an increase in book value per share growth by about 6.94% indicate a solid underlying value in the company's assets and equity.
Moreover, Amazon's enterprise value to EBITDA valuation ratio of 19, significantly below its five-year average of 25, suggests that the stock might be undervalued. This presents a compelling opportunity for investors to consider Amazon as a potential addition to their portfolios, especially given its track record of innovation, market adaptation, and financial resilience. The company's ability to navigate market changes and capitalize on growth opportunities, as evidenced by AWS's success, reinforces its potential for future expansion and profitability.
While the recent financial performance shows mixed results, Amazon's long-term prospects remain promising. The company's diversified business model, innovative capabilities, and strategic investments in high-growth areas like AI through AWS, position it as a potentially undervalued stock that could boost investors' returns over the long term. As highlighted by The Motley Fool, patience, a diversified portfolio, and a long-term investment horizon are key when considering Amazon for wealth building, despite the current financial headwinds.
