Amazon has reported an increase in profits for the first quarter of this year. Advertising and cloud computing are to thank for this.
The net income of the company increased from $3.4 billion to $10.4 billion. Sales rose 13% to $142.4 billion.
Amazon Web Services, its cloud division, and the largest cloud service unit in the World, saw revenue rise by 17 per cent to $25 billion during the three-month period ending March. This exceeded forecasts of $24.5billion as the demand for artificial intelligence increased.
The world’s biggest online retailer, however, forecasted second-quarter revenues below Wall Street expectations. It predicted revenue between $144 billion and $149 billion from the current quarter until the end of the June, as opposed to expectations of $150 billion. Jefferies analysts called it a “pragmatic strategy” and Morning Star analysts said that the difference is “immaterial”.
Andy Jassy (56), who will succeed Jeff Bezos in 2021 as Amazon’s chief executive, stated that “there is an opportunity” for Amazon in serving artificial intelligence (AI), customers.
He said: “The combination between companies renewing their modernisation efforts in infrastructure and the appeal AWS AI capabilities has reaccelerated AWS growth rate to a run rate of $100 billion annually.” We are excited about how much we can do to make the lives of our customers easier and better in the future.
Brian Olsavsky said that capital expenditures would continue to increase through the year. This is compared to $14 billion spent in the first three months, the majority of which was in data centres capacity, “to support AWS infrastructure, and in particular, generative AI efforts”.
Amazon wants to stay ahead of its competitors in providing AI-generated software. Alphabet (the owner of Google) and Microsoft-backed OpenAI are competitors. Microsoft’s cloud computing revenue grew by 31 percent and Alphabet’s revenue rose by 28 percent in the first quarter.
Since OpenAI’s ChatGPT was released in November 2022, the hype around AI has grown. Silicon Valley companies have been in a race to develop this technology. Amazon announced that its version of “Q” a chatbot designed for businesses is publicly available. Earlier this year, it launched the Rufus service on its website to help customers find new products.
Advertising sales, excluding AI, was an important driver of profits for the company. The company recently added it to its Prime Video streaming service, and the revenue grew by 24 percent from the previous year. Nikhil Lai is a senior analyst with Forrester. He stated: “High-margin revenue from ads on retailer’s sites and apps offsets losses from first-party products and content sales. Third-party seller fees. Physical store sales. and subscription services.”
The company has cut costs by more than 27,000 workers since 2022.
Amazon, based in Seattle, Washington was founded by Bezos in 1994. He is still the company’s executive chairman and largest shareholder. Amazon has interests in retail, streaming, and advertising. The company has a market capitalization of $1.8 trillion and its net income increased from $3.2 billion to $10.4 billion during the first quarter of this year. Sales of $143.3 billion exceeded the forecasted $142.5 billion.
Investors reacted positively after-hours to the new figures, and shares of Amazon rose as high as 6 percent. The gains were later trimmed, and the stock closed at $180.07, up 3 per cent or $5.10. Amazon’s failure to announce its first dividend, after Alphabet announced it last week, was disappointing.
Amazon MGM Studios released 20 films and TV series in the first quarter, including Fallout’s debut season, which attracted 65 million viewers, and became the second-most watched title on Prime Video within its first 16 days.
Forbes estimates that Bezos’ fortune is $197.6 Billion. He also owns The Washington Post, Blue Origin, a rocket-building aerospace company, and The Washington Post.
Analysts from HSBC stated: “The key message for us is that Amazon has now harvested the fruits of its past investments after years of outsized investing. The results confirm that (again). When asked about a possible pivot back to investment, the management was clear that Amazon has the size and ability to do both. We expect cost optimization and efficiency improvements to continue to be a major factor in the coming quarters.