Amazon Turns Profitable Again... Cash Cow Performance Hits Worst in 8 Years

Q1 Earnings Announcement
Net Profit $3.2 Billion... Exceeds Market Expectations

U.S. e-commerce company Amazon posted first-quarter results that far exceeded market expectations. Although net profit turned positive compared to the same period last year and the profit margin expanded compared to the previous quarter, the growth of its core business slowed, showing that management performance remains unstable.

On the 27th (local time), Amazon announced in its earnings report that first-quarter net profit reached $3.172 billion (approximately 4.2944 trillion KRW), significantly surpassing Wall Street's estimate of $2.24 billion.

Amazon succeeded in turning a profit from a net loss of $3.844 billion in the first quarter of last year, and the profit margin also greatly expanded compared to the previous quarter ($300 million). Last year’s first quarter marked the first quarterly loss in seven years, as the lifting of COVID-19 lockdowns led to a temporary decline in online demand due to a recovery in offline demand.

There were concerns that deficits might continue amid the onset of a high inflation era and increased cost burdens, but Amazon dispelled such worries by achieving better-than-expected strong results in the first quarter.

During the same period, revenue rose 9% year-over-year to $127.4 billion (approximately 170.9708 trillion KRW), surpassing Wall Street expectations of $124.6 billion (approximately 167.2132 trillion KRW) compiled by market research firm FactSet.

Core e-commerce sales remained flat compared to the previous year, and the growth rate of Amazon Web Services (AWS), the company’s cash cow and main growth driver, was significantly sluggish. AWS’s first-quarter revenue growth rate was 15.8%, a sharp slowdown from 37% in the same period last year. The Wall Street Journal (WSJ) reported this as the lowest growth rate since AWS was separated into a distinct business unit in 2015.

Amazon CEO Andy Jassy also expressed concerns about the AWS division in a recent letter to shareholders. In the letter, he stated, "As recession fears deepen, companies are becoming cautious about cloud investments," adding that "the AWS business is facing short-term headwinds."

He acknowledged that the company is facing its toughest challenge since its founding but emphasized that it is focusing on investments with a long-term perspective and remains optimistic about the future.

Amazon is undergoing intensive restructuring to reduce the overexpansion of its business during the pandemic. Following the layoff of 18,000 employees last November, the company plans to cut an additional approximately 9,000 employees by the end of this month.

The workforce adjustments are taking place in divisions such as cloud computing and streaming services (content). As a result, Amazon’s global headcount decreased to 1.46 million as of the end of the first quarter. Last month, the company also halted construction of its second headquarters near Washington, D.C., focusing on cost reduction.

[Image source=Reuters Yonhap News]

In addition to slowing growth, Amazon faces risks from government regulation. According to a WSJ report in February, the U.S. Federal Trade Commission (FTC), which oversees big tech companies, is considering an antitrust lawsuit against Amazon. Sources indicate that the FTC views a series of Amazon’s business practices as potentially anti-competitive and is expected to file an antitrust lawsuit soon.

The FTC has been investigating allegations that Amazon has engaged in anti-competitive behavior by using its monopoly position to treat competitors’ products unequally compared to its own products on its platform. The FTC is also known to have investigated Amazon Prime’s bundling practices.

Meanwhile, Amazon expects its performance improvement to continue into the second quarter. The company projected second-quarter revenue between $127 billion and $133 billion, aligning with Wall Street’s forecast of $129.8 billion.

Amazon’s stock, listed on the Nasdaq, closed up 4.61% in regular trading on the day. Following the earnings announcement, buying momentum surged, and in after-hours trading, the stock price rose by more than 10% at one point.

This content was produced with the assistance of AI translation services.