Tech giants promoting e-commerce and cloud services around the world and actively participating in the “AI arms race” after the US stock market on Tuesday, April 30$Amazon (AMZN.US)$The financial results for the first quarter of 2024 have been released.

Amazon's quarterly report is positive. Some analysts say that its total revenue growth rate was the fastest in a year. AWS cloud revenue accelerated for the second quarter in a row, and the operating profit margin for the business reached a record high. However, the second-quarter revenue and operating profit guidelines were slightly lower than expected. The second-quarter revenue growth rate may be the slowest since December 2022, and did not follow Meta and Google's announcement of the first dividend in history, all of which narrowed significantly after the market share price jumped 6%.

Amazon dived and closed down 3.3% at the end of Tuesday, breaking away from a two-week high and rising 15% since this year, significantly outperforming the 5.6% increase of the S&P market, the 4% increase of the NASDAQ, and the fact that the Dow, which it just joined as a component stock in February, remained flat. Over the past 12 months, Amazon has surged more than 71%, but fell more than 7% from the record closing high of $189.05 for the first time in two years on April 11.

As a leading cutting-edge company in the field of artificial intelligence, Amazon is loved by investors who are optimistic about large technology stocks. Over the past three months, 42 analysts have covered its research reports, all of which are buying ratings. The average target price of $213.74 indicates that there is still room for 22% increase. Wall Street believes that the company's AI-driven cloud computing, e-commerce, and advertising revenue and profit margins will all grow at an accelerated pace.

Amazon's revenue in the first quarter increased by more than 12%, profits tripled, and AWS's annual sales are expected to reach 100 billion US dollars

According to financial reports, Amazon's revenue for the first quarter increased by 12.5% to 143.31 billion US dollars from 127.4 billion US dollars in the same period last year, higher than analysts' expectations of 142.6 billion US dollars, and the fastest growth rate in a year; adjusted EPS per share reached 0.98 US dollars, higher than the expected 0.83 US dollars, which is more than three times the 0.31 US dollar in the same period last year or 216% year-on-year increase.

However, revenue and EPS were weaker month-on-month than the $169.96 billion and earnings per share of the year-end holiday shopping season in the fourth quarter of last year, respectively. At that time, Amazon's revenue increased 14% year over year, and EPS's earnings per share jumped sharply from the fourth quarter of 2022 to 0.03 US dollars.

Operating profit for the first quarter was also three times that of 4.8 billion US dollars in the same period last year, or increased 219% year over year to 15.3 billion US dollars, higher than the forecast of 11.2 billion US dollars, and unexpectedly surpassed the 13.2 billion US dollars for the fourth quarter of last year. Net profit for the first quarter increased 225% to 10.4 billion US dollars from 3.17 billion US dollars in the same period last year, higher than the forecast of 8.9 billion US dollars, and weaker than the two-year high of 10.62 billion US dollars in the fourth quarter of last year.

According to the company, net profit for the first quarter of 2024 included pre-tax valuation losses of 2 billion US dollars from common stock investments in “Tesla rival” and electric truck startup Rivian, a significant increase from a similar pre-tax valuation loss of 500 million US dollars in the first quarter of last year.

According to some analysts, the increase in operating profit far exceeds revenue growth, which is the latest sign that cost cuts and concerns about efficiency are boosting its profits. Since the end of 2022, Amazon has laid off more than 27,000 employees, and also laid off hundreds of Health and AWS employees in the first quarter of this year.

In terms of performance guidance, Amazon expects net sales for the second quarter to be between 144 billion and 149 billion US dollars, which is equivalent to a 7% to 11% year-on-year increase, but the market's expected revenue should break the 150 billion US dollar mark or increase by another 12%; operating profit is expected to be between 10 billion and 14 billion US dollars, an increase of at least 30% over 7.7 billion US dollars in the same period last year, but the midpoint of the range is slightly lower than the market's forecast of 12.56 billion US dollars.

Financial blogger ZeroEdge said that this means Amazon's revenue growth rate in the second quarter will be the slowest since December 2022.

Amazon President and CEO Andy Jassy (Andy Jassy) said that many companies have regained investment in infrastructure modernization, and combined with the appeal of AWS's artificial intelligence capabilities, are once again accelerating the growth rate of AWS, and the annual revenue of this business is expected to reach the 100 billion US dollar mark at the current pace. The advertising business is also benefiting from the growth of stores and Prime Video. “All of our businesses are still in the early stages,” which suggests there is huge potential for the future.

Cloud revenue has accelerated for two consecutive quarters and operating profit margins have reached a record high. Advertising increased 24% year over year, and there are still no dividends

By business, core e-commerce sales in the first quarter increased 7% to 54.67 billion US dollars from 51.1 billion US dollars in the same period last year, and advertising revenue increased 24% to 11.8 billion US dollars from 9.5 billion US dollars in the same period last year, all in line with market expectations. Cloud business AWS revenue increased nearly 17% to 25 billion US dollars compared to 21.4 billion US dollars in the same period last year, exceeding expectations of 24.5 billion US dollars.

In the fourth quarter of last year, Amazon advertising revenue increased 27% year on year to 14.654 billion US dollars, accelerating growth for the fifth consecutive quarter; AWS revenue increased 13% year over year to 24.204 billion US dollars, and AWS's operating profit margin reached 27% in 2023.

This represents two consecutive quarters of accelerated growth in Amazon's AWS cloud revenue in the first quarter. It indicates that the cloud business is improving. It is in line with the trend of cloud revenue acceleration in competitors' Microsoft and Google quarterly reports. Microsoft and Google's cloud revenue increased by 23% and 28% respectively during the quarter. In the third quarter of last year, AWS's revenue growth ended six consecutive quarters of deceleration, returning to an accelerated expansion for the first time since the fourth quarter of 2021.

The demand for generative AI tools and services is driving business growth for all cloud providers. AWS's operating margin for the first quarter of this year was 37.6%, a record high, up from 30.3% and 29.6% in the third and fourth quarters of last year, and returned to normal after three consecutive quarters of year-on-year decline beginning in late 2022.

AWS brought in operating profit of 9.4 billion US dollars in the first quarter, far exceeding expectations of 7.5 billion US dollars, an increase of 84% over the previous year, accounting for 61.4% of total operating profit. Most of Amazon's revenue comes from its core business e-commerce, but cloud computing AWS and advertising contribute most of the profits. At the same time, international businesses rarely turned losses into profits. Operating losses exceeded 400 million US dollars in the fourth quarter of last year and 1.2 billion US dollars in the first quarter of last year.

According to other analysts, the advertising business has been the fastest growing division in Amazon's revenue for several consecutive quarters. The company first began selling ads on the Prime Video membership subscription streaming service in January this year. This performance, which helps increase profits, will attract much attention. Previously, most of Amazon's advertising revenue came from ad display sales on e-commerce platforms.

In addition, revenue from third-party seller services, including commissions, fulfillment fees, shipping and other fees collected by Amazon, continued to surge. Revenue in the first quarter increased 16% year over year to US$34.5 billion, but slightly lower than market expectations of US$34.63 billion.

Amazon certainly didn't announce the first dividend in the company's history to follow Meta and Google. Amazon is the last major tech company that has yet to pay dividends to shareholders.

What are you most concerned about? Artificial intelligence, advertising, profit, whether to pay dividends for the first time

Analysts will focus on whether the advertising and cloud computing business can withstand the challenges of slowing spending and achieve continued growth, as well as the company's capital expenditure trends in investing in artificial intelligence, which will affect free cash flow.

Amazon once said that the goal of 2024 is to improve efficiency and profitability, and the strategic investment in warehouse robot automation is also worth paying attention to. Currently, the company has deployed more than 750,000 robots in fulfillment centers, which has driven the increase in fulfillment costs lower than the increase in overall revenue. The CEO promised to further reduce costs associated with Amazon's internal fulfillment structure and inventory allocation this year.

And the new engine of growth, artificial intelligence planning, is bound to become the focus of financial reports for all major technology stocks. Meta's stock price plummeted by double digits after drastically raising its capital expenditure forecast for this year, indicating that investors are beginning to lack patience for heavy AI investments over the next few years.

Cloud providers, led by Amazon, are investing heavily to expand artificial intelligence capabilities, including purchasing advanced chips and building new data centers. Both Microsoft and Google have indicated that they are investing more money to build artificial intelligence data centers.

Amazon positions itself as an artificial intelligence leader and anticipates that AI will generate tens of billions of dollars in potential revenue for its cloud business. CEO Andy Jassy (Andy Jassy) bluntly stated in a letter to shareholders issued in April: “Generative artificial intelligence is probably the biggest technological transformation since the cloud (which itself is still in its early stages), and even since the internet.”

Wall Street is also concerned about whether Amazon can continue to improve the profitability of its huge retail business, the impact of recent price increases on third-party sellers, whether advertising on Prime Video is expected to bring in billions of dollars in additional revenue, and continued layoffs to increase efficiency. Jia Xi said he believes Prime Video will grow into a large-scale and profitable business on its own, and streaming advertising is growing rapidly and starting well.

Currently, Amazon AWS ranks first with about 30% of the cloud market share, followed by Microsoft Azure and Google Cloud. Amazon's advertising business ranks third with a market share of nearly 15%, second only to Google and Meta, the long-term leaders in digital advertising. Meanwhile, the retail industry in the US is becoming increasingly competitive, and Chinese e-commerce businesses Temu and Shein both pose a major threat to Amazon's profits.

Furthermore, after Meta and Google announced dividends this year, the market is paying close attention to whether Amazon will also pay dividends for the first time. Amazon is the last major technology company that has yet to pay dividends to shareholders. However, since Amazon spent 3.3 billion US dollars to buy back the stock in June 2022, there has been no action, and any updates may strongly drive up the stock price.

According to some analysts, paying dividends is not only a sign that a company is maturing, but may also effectively distract investors from huge capital expenses. The distribution of dividends often indicates that a company's high growth years are over, but the AI business may break this model.

However, New Street Research believes that Amazon is unlikely to pay dividends and is writing an article on the remaining $6.1 billion share repurchase authorization. At the same time, funding AI will make the company's capital expenditure higher than market consensus expectations.

What do you think of Wall Street?

In September of last year, Amazon launched the Amazon Bedrock AI service, which allows customers to build generative AI applications using Anthropic, Stability AI, and existing big language models provided by Amazon. In March of this year, Amazon invested an additional $2.75 billion in artificial intelligence startup Anthropic, bringing the total investment to $4 billion. The company also laid off staff in the slowing AWS department, terminated the cashier-free checkout system at the US fresh food supermarket Amazon Fresh, and launched a new daily miscellaneous delivery subscription service.

Evercore ISI believes that advertising on Prime Video in January of this year has huge potential for growth. Amazon's huge resources, large amount of consumer data, and Prime Video's broad influence may be factors driving the expansion of the new advertising platform.

UBS pointed out that as AWS revenue becomes more stable, investors' focus is expanding to retail market platform business and operating profits, “rather than focusing more narrowly on AWS growth.” It is expected that AI assistance and same-day express delivery will accelerate the development of Amazon's e-commerce business. Amazon said this week that the first three months of this year had already set a new record for Prime member delivery speed, breaking the 2023 record high.

Goldman Sachs said that resilient retail demand and anticipated growth in AWS and advertising revenue have made Amazon the “first choice” for e-commerce stocks. Otherwise, as the industry faced a series of adverse factors, Goldman Sachs would have been cautious about e-commerce stocks as a whole. Bank of America also said that expanding retail profit margins and positive developments in AWS and advertising revenue are the main drivers of Amazon's stock price.

Wells Fargo believes 2024 will be a year of cyclical recovery, and corporate artificial intelligence may receive more attention in 2025/2026. Needham said that Amazon will rank among the 2 to 3 biggest winners in the AI competition. It is developing customized generative AI chips, which may be a huge catalyst for stock prices in the next few years, but weak consumer demand and increased competition are the main risks.

Wedbush believes that generative artificial intelligence cloud services will bring incremental revenue of tens of billions of dollars to Amazon in the next few years. “AWS is still the main beneficiary of generative AI and is in an advantageous position in all layers of solutions”. At the same time, once Prime Video advertising is promoted globally, it may generate about 6.5 billion US dollars in revenue, and almost all advertisers surveyed plan to increase Amazon's advertising budget.

Jefferies believes that Amazon has entered a “harvest mode” in terms of cost reduction, and faces opportunities for profit expansion in the next few years, thanks to continued focus on improving the efficiency of various business divisions, as well as the accelerated growth of AWS and advertising, the highest-margin business.

Editor/Somer