AMZN • 10-Q • Q1 2024 • Positive

Amazon's Q1 Shows Massive Profitability Surge as AWS Growth Reaccelerates to 17%

May 01, 2024 • 1 min read

TL;DR

Amazon delivered exceptional Q1 results with operating income nearly tripling YoY to $15.3B. North America segment achieved record profitability at $5B while International turned profitable for the first time in years. AWS growth reaccelerated to 17% with margins expanding to 37.6%. The results demonstrate Amazon's ability to drive both growth and efficiency at massive scale, though Rivian investment losses of $2B impacted net income. Management's commentary suggests continued momentum into Q2 w

Financial Performance Overview: Revenue grew 13% YoY to $143.3B, with operating income surging 184% to $15.3B. North America operating margin expanded 450bps to 5.8% while International achieved 2.8% operating margin versus -4.3% last year. AWS maintained strong 17% growth with operating margins expanding 980bps to 37.6%. Operating cash flow for trailing twelve months nearly doubled to $99.1B, demonstrating dramatically improved operational efficiency. These results suggest Amazon's cost optimization efforts are delivering sustainable margin expansion while growth reaccelerates.
Strategic Initiatives and Operational Changes: Management highlighted significant AI investments across AWS, including new Graviton4 and Trainium2 chips plus expanded GPU capacity. Fast shipping initiatives drove North America growth while advertising revenue continues to scale. International segment achieved profitability through improved logistics network utilization and reduced delivery costs. AWS is seeing increased customer interest in generative AI workloads, suggesting potential growth acceleration in coming quarters as enterprises increase cloud migration and AI adoption.
Market Position and Competitive Dynamics: AWS maintained 32% cloud market share despite increased competition from Microsoft and Google. Retail market share gains continued with third-party seller services growing faster than first-party sales. Advertising business now at $12B+ run rate shows Amazon capturing larger share of digital ad spend from Google/Meta. Prime membership growth and engagement remains strong with fast shipping driving customer loyalty. International expansion provides significant growth runway despite near-term macro challenges.
Operational Efficiency and Profitability: Operating leverage significantly improved with operating margin expanding 580bps to 10.7%. Fulfillment network optimization and improved inventory management drove North America profitability gains. AWS margin expansion reflects both operational efficiency and strategic pricing decisions. Free cash flow turned positive at $50.1B TTM versus -$3.3B year ago, demonstrating successful transition from investment cycle to harvest mode. Capital expenditures declined 15% YoY while maintaining growth investments.
Growth Catalysts and Material Risks: AI adoption driving AWS growth with significant opportunity in enterprise digital transformation. International markets provide expansion runway though macro headwinds persist. Advertising business scaling with improved targeting capabilities. Key risks include Rivian investment volatility, potential regulatory actions, and intense cloud competition. Management focused on balancing growth investments with profitability through operational discipline and strategic capital allocation.

Revenue

$143.3B ( YoY) with AWS $25B (), NA $86.3B (), Int'l $31.9B ()

↑ +13%

Rd Spend

$21.8B TTM ( YoY)

↑ +12%

Net Income

$10.4B including $2B Rivian loss impact

Gross Margin

(+190bps YoY)

↑ 46.7%

Free Cash Flow

$50.1B TTM vs -$3.3B year ago

Operating Margin

(+580bps YoY)

↑ 10.7%

Growth Indicators

YoY acceleration from in Q4

↑ 17%

Advertising Revenue $12B+ annualized run rate

International Profitability First profitable quarter in years at 2.8% margin

Key Risks

Cloud competition intensifying with Microsoft AI leadership
Regulatory investigations could impact business practices
Rivian investment volatility affecting net income
International macro headwinds persisting

Key Opportunities

Enterprise AI adoption driving AWS growth acceleration
International e-commerce penetration expansion
Advertising business scaling with improved capabilities
Healthcare and financial services initiatives

Bottom Line

Amazon's Q1 results demonstrate successful execution of strategic priorities while maintaining competitive advantages. The dramatic improvement in profitability suggests sustainable operating leverage rather than temporary cost cuts. AWS reacceleration and AI investments position cloud business for continued leadership. International profitability achievement marks important milestone in global expansion strategy. Key metrics to watch include AWS growth rate, advertising revenue trajectory, and international margins. The contrarian insight is that Amazon's mature businesses are becoming more profitable than many realize, funding significant investment in future growth initiatives.