Men work at a distribution station in the 855,000-square-foot Amazon fulfillment center in Staten … [+]
After reporting first-quarter results, Amazon’s stock is chugging along pretty well under the leadership of CEO Andy Jassy.
Shares in the leading cloud services provider have risen about 15% in the first four months of 2024 — outpacing the Nasdaq’s 6% increase. They added another 2% in after-hours trading on May 1, according to the Wall Street Journal.
Jassy’s cost cutting moves have boosted Amazon’s profitability. While the company’s revenue growth is improving, it still lags the 27.4% average annual growth the e-tailing giant enjoyed in the decade before he took over.
“It was a good start to the year across the business, and you can see that in both our customer experience improvements and financial results,” Jassy said in a statement.
In the absence of new growth-propelling investments, perhaps Amazon should follow Apple
Apple
Given Jassy’s commitment to turning generative AI into a significant source of growth, Amazon investors will have to wait until his vision translates into much faster revenue growth.
Amazon’s Mixed 2024 First-Quarter Earnings Report
Amazon’s mixed quarter featured expectations-beating sales and profitability along with disappointing revenue guidance.
Here are the key numbers:
- Q1 2024 revenue: $143.3 billion — up 13% and $800 million above the London Stock Exchange Group consensus, the Journal reported.
- Q1 2024 earnings per share: 98 cents — 12 cents above the LSEG forecast, noted the Journal.
- Q1 2024 AWS revenue: $25 billion — up 17% and $500 million above the StreetAccount consensus. AWS’ operating profit rose 84% and represented 62% of Amazon’s total, reported CNBC.
- Q1 2024 advertising revenue: $11.82 billion — up 24% and $120 million ahead of the StreetAccount consensus with help from showing ads on the company’s “Prime Video platform unless customers pay more,” the Journal noted.
- Q2 2024 revenue guidance: A range between $144 billion and $149 billion — the midpoint of which represents 9% growth and falls $4.2 billion short of the FactSet consensus, wrote the Journal.
- Q2 2024 operating income guidance: A range between $10 billion and $14 billion — the midpoint of which is about 56% more than the prior year’s result, according to CNBC.
Can Amazon Grow Faster?
Amazon’s single-digit growth forecast for the current quarter makes me wonder whether the company is following Apple’s path of relying too heavily on successful growth investments under its previous CEO that have since become mature.
After lagging Microsoft
Microsoft
Here are four of Amazon’s most important moves to turn generative AI into a significant growth source:
- Companies running generative AI applications on AWS are adding revenue. Customers have shown “high interest in running their generative AI applications on AWS and building their foundation models there,” CFO Brian Olsavsky told investors in the fourth quarter of 2024, noted the Journal. In the first quarter of 2024, generative AI services amounted to “multibillion dollars” a year, said Dave Fildes, Amazon’s head of investor relations, on the press call according to a New York Times
New York Times
- Amazon Q. In November, AWS introduced Amazon Q — an AI chatbot for companies that is now generally available through AWS, the Journal reported. Amazon Q “is an assistant for software development, cloud optimization, and business intelligence” for which the company is charging $20/user per month for its Business version and $19/user-month for Amazon Q Developer, noted GeekWire.
- Rufus shopping assistant. Earlier this year, Amazon announced plans to introduce Rufus — an AI-powered mobile shopping assistant “designed to improve the shopping experience and enhance the search bar,” reported the Journal. Rufus could increase the time consumers spend on Amazon and boost the company’s sales and retail media revenues. To unlock that revenue potential, Amazon must “quickly improve the quality of its responses,” noted eMarketer.
- Investments in AI startup Anthropic. In March 2024, Amazon invested $4 billion in the operator of Claude, an AI chatbot. “Anthropic’s visionary work with generative AI, most recently the introduction of its state-of-the art Claude 3 family of models, combined with Amazon’s best-in-class infrastructure like AWS Tranium and managed services like Amazon Bedrock further unlocks exciting opportunities for customers to quickly, securely, and responsibly innovate with generative AI,” said Dr. Swami Sivasubramanian, vice president of Data and AI at AWS, in a company statement.
Should Amazon Pay Dividends And Buy Back Stock?
Amazon’s cash position is growing significantly. The company’s cash and equivalents increased 36% in the first quarter to $73.9 billion, according to the Journal. Yet the company is not following its peers by buying back stock and issued dividends to shareholders.
Meta and Alphabet recently took such steps. Meta “announced its first dividend in February at 50 cents a share, and Alphabet followed, telling investors last week that it will start paying a dividend of 20 cents a share. Those companies also announced plans to buy back tens of billions of dollars in stock,” the Journal wrote.
Amazon — which spent about $14 billion on capital expenditures mostly for generative AI, Olsavsky told investors — will not pay a dividend.
“On the earnings call, Olsavsky shot down speculation that Amazon would join other tech powerhouses in initiating a dividend, but would instead stick with its philosophy of investing in growth initiatives, like going all in on generative AI,” wrote Seeking Alpha.
Given its growing cash hoard, why Amazon can’t invest in generative AI, pay dividends, and buy back stock at the same time?
