What happened
Amazon (AMZN 1.43%) reported first-quarter results Thursday night and the stock is now dropping in response. After dipping by as much as 5% in morning trading, Amazon stock was still lower by 3.4% as of 2 p.m. ET.
So what
It's all about the cloud. At least, that's how investors are reacting. It also should be noted that Amazon shares had jumped by a total of 7% during the two trading days leading up to the earnings announcement.
NASDAQ: AMZN
Key Data Points
But investors concluded that run-up was excessive after the company reported that its Amazon Web Services (AWS) cloud segment grew revenue by just 16% year over year. That may sound positive on the surface, but it compares to 20% year-over-year growth in the fourth quarter of 2022 and 37% in the first quarter last year. That has left investors wondering where the growth deceleration will bottom out, as Microsoft's Azure and other competitors presumably are gaining market share.
Now what
Once again, AWS was the company's profit producer, contributing $5.1 billion in operating income while the North America and International segments combined for an operating loss. Amazon reported $3.2 billion in net income for the quarter, which soundly beat Wall Street's consensus estimate of $2.2 billion.
While investors were selling Friday, it appears to be an opportunity for long-term investors. Amazon's free cash flow remains negative over the past year. That may sound bad at first, but it's just because the company continues investing in future growth. Amazon has launched a new fulfillment management system for its e-commerce sellers, invested to make its Prime Video streaming offering more attractive, and it completed its acquisition of One Medical to move deeper into healthcare.
The company itself forecasts overall sales will continue to grow. It estimates second-quarter revenue will increase between 5% and 10% versus the prior year period. Long-term investors might want to take advantage of today's reaction to buy, or add, shares.
