Amazon’s revenue growth, while steady, has remained in single digits for five out of the past six quarters, a trend that is projected to persist with analysts forecasting a modest growth of 8.5% in the second quarter and a slightly higher figure in the third.
Amazon Web Services (AWS), which has been instrumental in driving growth for several years, is now witnessing a slowdown in expansion as customers tighten their budget due to economic uncertainties. In the first quarter, AWS saw a sales increase of roughly 16%, the slowest since Amazon started reporting its cloud revenue separately in 2015.
Notably, Amazon’s finance chief, Brian Olsavsky, cautioned in April about an expected continuity of this trend in the second quarter. Growth for the second quarter is anticipated to drop to 10%.
Apart from the cloud, profit margins, as well as artificial intelligence, are areas drawing investor attention. As per analysts at Evercore, it remains uncertain whether AWS will start showing revenue growth acceleration beginning in Q3 due to factors such as the timing of the optimization cycle, AI workloads, and easing comps.
Major competitors in the cloud space like Microsoft and Alphabet recently reported solid cloud business results, surpassing analysts’ revenue expectations. However, both companies reported a continued moderation in cloud spending by organizations.
Apple, along with Amazon, will also present its quarterly report soon, rounding off the earnings season for large tech corporations. A focal point of these reports has been artificial intelligence.
Recently, Amazon held an AWS Summit, where updates related to generative AI were announced. These included a service that employs AI to transcribe and summarize medical appointments.
Investors are looking towards Amazon’s results to gauge the success of the company’s ongoing cost-cutting efforts. The second quarter is anticipated to bring improved margins in Amazon’s retail business, as Amazon’s operations continue to regionalize and stabilize.
Amazon’s fulfillment network is reporting improved delivery speeds and efficiency, and the company stated that significant strides have been made towards establishing one- and same-day delivery as a standard for Prime members, all the while reducing costs.
In the quarter under review, Amazon also held its annual Prime Day sale, which was advertised as its “biggest ever.” The guidance for the third quarter might reveal the extent to which Prime Day boosted sales.
The digital advertising arm of Amazon is becoming increasingly significant to its financials. Industry surveys suggest a slow recovery in the digital ad market. While Meta posted better-than-expected results last week, Snap fell short of sales expectations and projected a weaker forecast for the current quarter.
