Amazon shares losses after Q1 earnings on slowing AWS growth 📉

The optimism caused by earlier reports from major tech stocks was somewhat dulled after the publication of Amazon (AMZN.US). The results themselves came out relatively well - the company beat forecasts for revenue and earnings per share. However, investors didn't like the fact that it warned of a slowdown in cloud services.

Sales: $127.36 billion vs. $124.7 billion forecasts

EPS: $0.36 (excluding loss on Rivian shares) vs $0.20 forecasts

Amazon Web Services (AWS): $21.35 billion vs. $21.03 billion forecasts (1.5% y/y growth)

Operating margin: 3.75% vs. 2.38% forecasts

Operating income: $4,77 bln vs $3,0 bln forecats

Net sales in North America $76.88 billion, 11% y/y vs. $75.54 billion forecasts

International net sales $29.12 billion,1.3% y/y, $27.65 billion forecasts

Q2 forecasts

Sales: $127 billion-$133 billion vs. $130.1 billion forecasts

Operating profit: $2 to $5.5 billion, forecast $4.74 billion.

Amazon conveyed that it has seen a bigger slowdown in cloud computing since April. According to the company's commentary, cloud computing revenue rates this month are 5% lower overall in Q1. The news didn't please investors because Amazon Web Services accounts for the largest portion of the company's net income. Amazon's CFO, Olsavsky indicated that the company is seeing a 'noticeable slowdown' in the segment but continues to optimize spending. The company cited tougher economic conditions and consumer caution. It also saw similar caution in the e-commerce division. Also, the rather wide range of operating profit forecasts confirms the company's uncertainty about future trends.

Amazon's results in numbers. Source: Bloomberg

• AWS revenue grew 16% (forecast 13.8% y/y) in Q1 with an annual growth rate of 37% in Q1 so the decline in momentum is more than 50%. However, the company commented that in the long term, AWS' business will 'outlive everyone', signaling a positive outlook for the long term;
• In essence, the commentary confirmed the magnitude of the risk the recession poses to the AWS business. Since this one is weakening significantly despite a still quite strong US economy, it seems possible a much stronger weakening if the economy weakens much more, along with consumer trends;
• The company confirmed plans to lay off a total of 27,000 employees but still expects the 2023 delivery rate to be the fastest ever. The stores unit reported a drop in costs. Amazon reported a large investment in machine learning, so that the advertising business was still doing well;
• The company noted negative consumer trends in both AWS and e-commerce indicating more frequent choices of cheaper products among customers. So it looks like not only large companies using AWS but also US consumers are becoming more cautious in their spending in the face of economic uncertainty and high inflation;
• At the same time, online store sales declined by 1% y/y in Q1 2022, and grew by 1% y/y in Q1 2023. Also, the U.S. retail segment did better than in Q1 2022 when it posted a $1.5 billion loss - it now has an operating income of nearly $900 million. In the end, it is not because of the report that the stock is losing today, the reason is the uncertain environment for further growth.

Amazon (AMZN.US) shares, D1 interval. The stock settled below a key support, the SMA200 on the daily interval, following results that performed well, but the reaction was dampened by a weaker outlook for the future. A session close below $107 could indicate bearish pressure. In the longer term, the key for the company will be the condition of individual consumers and companies in the US, where Amazon has largest sales. Source: xStation5