With another week of earnings season in the rearview mirror, investors have a lot more information to digest now. This week notably included reports from well-known tech companies like Alphabet, Meta Platforms, and Microsoft. While all of these tech giants' earnings reports featured useful information for investors, the most interesting report from the week was probably Amazon.com's (AMZN 2.77%) first-quarter update.
Amazon's stock went on a roller-coaster ride following its earnings report on Thursday afternoon. The company's better-than-expected first-quarter financial results came in well ahead of analysts' expectations, initially causing shares to rise. But management's commentary during the company's earnings call on Thursday afternoon about a significant slowdown in its cloud revenue in April ended up spooking investors. By the time the market digested the report, the stock had fallen about 4% on Friday.
Here are some of the most important takeaways from the quarterly update.
Strong overall sales growth
Amazon's total revenue rose 9% year over year to more than $127 billion in its first quarter. This was on par with the 9% growth the company reported in the fourth quarter of 2022. This revenue was also higher than analysts' consensus analyst forecast of $124.6 billion. Going into the quarter, management had guided for the period's revenue to be between $121 billion to $126 billion.
"There's a lot to like about how our teams are delivering for customers, particularly amid an uncertain economy," said Amazon CEO Andy Jassy in the company's first-quarter earnings release.
Cloud computing sales are decelerating
Amazon said its cloud computing revenue increased 16% year over year (on both an absolute and foreign exchange-adjusted basis) during the period. This is a huge slowdown from the 37% adjusted growth the segment was serving up investors one year ago. Indeed, it's even a substantial slowdown from the 20% adjusted growth Amazon Web Services (AWS) revenue saw in the fourth quarter of 2022.
Amazon chief financial officer Brian Olsavsky said in the company's first-quarter earnings call that this was due to companies looking for ways to "optimize their cloud spending in response to ... tough economic conditions in the first quarter." Even worse, the deceleration seems to be worsening in Q2, as management said that its month-to-date AWS revenue growth rate is 500 basis points lower than in Q1.
Amazon guided for strong consolidated sales growth in Q2
Despite Amazon's expected slowdown in cloud computing in Q2, management remained confident about the sales potential of its overall business. The company guided for second-quarter revenue to be between $127 billion and $133 billion. This implies 5% to 10% growth for the quarter.
Other major segments besides AWS likely to contribute to Amazon's second-quarter revenue growth rate include the company's massive online stores segment, which grew 3% year over year on an adjusted basis in Q1 (up from 2% adjusted growth in the fourth quarter of 2022), third-party seller-services, subscription services, and advertising. Amazon's first-quarter third-party seller services, subscription services, and advertising revenue rose 20%, 17%, and 23%, respectively in Q1. While growth in any of these segments could slow in Q2, their strong momentum during Q1 suggests they'll likely help contribute to any top-line growth in Q2.
Amazon's first-quarter results highlighted a well-rounded company, able to make up for a slowdown in cloud computing with good execution across other major segments. Given the company's impressive Q2 revenue guidance, management seems confident that it can continue executing well in an uncertain environment.
