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Friday, April 28, 2023 12:28:01 PM
10:18 AM ET, 04/28/2023 - Briefing.com
Amazon (AMZN -4%) initially jumped 8% following earnings last night, but the stock started to pullback during the earnings call. The headline numbers were great with EPS and revenue upside. Operating income was nicely above prior guidance. The Q2 revenue ($127-133 bln) and operating income ($2.0-5.5 bln) guidance were both in-line. Investors got excited initially but then the concerns we mentioned in our preview started to come to light during the call.
Let's start with the Stores segment. Amazon said it was pleased with growth for this segment, including a sequential revenue acceleration in the International segment fueled by easing macroeconomic pressures in Europe. However, macro issues are continuing to drive cautious spending among consumers. Customers are looking to stretch their budgets and are moderating their spending on discretionary categories and focusing more on lower-priced items. Turning to AWS, we had some concerns going in, given the decelerating growth we saw from Azure earlier this week. The AWS segment posted +16% growth in constant currency (CC), which continues its downward trend from +20% CC in Q4, +28% CC in Q3, +33% CC in Q2 and +37% CC in Q1. Amazon is seeing enterprises continue to be cautious in their spending. Customers are looking for ways to save money however they can right now. Customers describe it as cost optimizing rather than cost cutting. But one of the benefits of the cloud is that you easily scale up or down depending on demand, which is not the case with on-premise infrastructure. Advertising Services segment revenue grew +23% CC, which was flat compared to the +23% CC growth in Q4, +30% CC growth in Q3 and +21% CC in Q2. This segment tends to be more up and down, but it is holding up better than we would have expected. Amazon believes it's bucking wider advertising trends because, even in difficult economies, most people still shop. Having the largest e-commerce shopping venue is a big advantage because sellers want that reach. It also helps that Amazon has made substantial investments in machine learning to make sure that end customers see relevant ads.
Overall, the concerns we mentioned in our preview came to pass for the most part. The initial pop higher was great to see and made us think we were too bearish in our preview. However, the concerns we had came to light during the call. The Stores segment held up fairly well, but Amazon's cautious comments on the consumer were a letdown. AWS was not great with CC growth falling to the mid-teens as clients become more cautious. Advertising held up well. The report itself was solid but Amazon's cautious commentary took the shine off those numbers. Also, we also think the stock had gotten a little ahead of itself (+31% YTD), so people are using this as a reason to book recent gains.
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