Amazon cost cuts drive operating margin into double digits for first time

For
most
of
its
27
years
as
a
public
company,


Amazon
investors
have
been
asked
to
sacrifice
profit
for
growth.
That’s
no
longer
necessary.

In
its
first-quarter

earnings
report
on
Tuesday,
Amazon’s
operating
margin
reached
double
digits
for
the
first
time
on
record.
The
company’s
margin
climbed
to
10.7%
in
the
period,
up
from
7.8%
in
the
fourth
quarter
and
topping
a
previous
high
of
8.2%
in
the
first
quarter
of
2021.

While
overall
revenue
growth
has
been
stuck
in
the
low
double
digits
for
several
quarters
—
and
was
mired
in
single
digits
for
parts
of
2021
and
2022
—
profit-hungry
investors
have
been
satisfied
by
the
combination
of
CEO
Andy
Jassy’s
hefty
cost
cuts
and
stronger
growth
rates
in
higher-margin
businesses
like
advertising
and
cloud
computing.

Operating
income
more
than
tripled
in
the
quarter
to
$15.3
billion,
while
net
income
also
jumped
more
than
200%
to
$10.4
billion.

“It
tells
us
that
Andy
Jassy’s
emphasis
of
services
for
Amazon
is
working,”
said
Tom
Forte,
an
analyst
at
Maxim
Group,
in
an
interview
with
CNBC’s “Closing
Bell:
Overtime”
on
Tuesday. “When
you
couple
that
with
his
very
aggressive
expense
management
you’re
seeing
these
impressive
margins.”

Amazon
shares
rose
by
about
1%
in
extended
trading.
The
stock
is
up
15%
for
the
year
as
of
Tuesday’s
close.

Revenue
at
Amazon
Web
Services
increased
17%
in
the
first
quarter,
a
more
rapid
rate
than
Wall
Street
had
expected.
Almost
two-thirds
of
operating
income
for
all
of
Amazon
came
from
AWS,
which
is
now
generating
over
$100
billion
in
annualized
revenue.
Growth
at
AWS
sped
up
from
13%
in
the fourth
quarter.

Digital
advertising,
a
business
that’s
made


Meta
and


Alphabet
two
of
the
most
profitable
companies
on
the
planet,
has
become
a
booming
business
for
Amazon
as
well.

Ad
revenue
increased
24%
to
$11.8
billion
in
the
first
quarter
from
$9.5
billion
a
year
earlier.

“Advertising
is
growing
and
AWS
has
been
strong,”
Amazon
CFO
Brian
Olsavsky
said
on
the
earnings
call
on
Tuesday,
in
discussing
improvements
in
operating
income.
But
there’s
more. “A
lot
of
that’s
driven
by
cost
controls
and
expanding
revenue
on
the
top
line
and
lower
cost
structures
throughout
the
company,”
Olsavsky
said.

He
added
that
the
retail
business
has
also
gotten
more
efficient,
due
to “regionalization
efforts”
that
include
retooling
its
logistics
network
so
packages
are
shipped
from
facilities
that
are
closer
to
shoppers.

Layoffs
have
been
a
big
part
of
the
story.

The
company
has
eliminated
more
than
27,000
jobs
since
late
2022,
with
the
cuts
bleeding
into
2024.
During
the
first
quarter, Amazon let
go
of
hundreds
of
staffers
in
its
health
and
AWS
businesses.

Technology
and
infrastructure
costs
dropped
slightly
from
a
year
earlier,
and
sales
and
marketing
costs
fell
5%.
Amazon
brought
general
and
administrative
expenses
down
by
10%.

Amazon expects
a
continued
jump
in
profitability
for
the
second
quarter
but
at
a
more
measured
pace.
Operating
income
will
be
$10
billion
to
$14
billion,
up
from
$7.7
billion
a
year
earlier.
That’s
still
much
higher
growth
than
in
revenue,
which
the
company
expects
to
increase
by
7%
to
11%
to
between
$144
billion
and
$149
billion.

Even
as
Jassy
continues
to
look
for
ways
to
trim
costs,
he’s
endorsed
big
investments
in
generative
artificial
intelligence,
particularly
in
the
cloud
business
where
the
company
has
launched
AI
services.

Olsavsky
said
on
the
call
he
expects
those
efforts,
along
with
investments
in
AWS
infrastructure,
will
lead
to
a “meaningful”
increase
in
Amazon’s
capital
expenditures
for
2024
compared
to
last
year.
Capital
spending
by
Amazon
and
its
cloud
peers
Microsoft
and
Google

has
accelerated
in
recent
quarters
as
the
companies
respond
to
demand
for
cloud
and
AI.

WATCH:

All
eyes
were
on
AWS