Amazon Reports Strong Earnings, Surprising Investors
Andy Jassy, the successor of Amazon founder Jeff Bezos, has successfully pleased investors by focusing on profitability. Amazon reported earnings of 65 cents per share, surpassing the estimated 35 cents per share, leading to a nearly 9% surge in the company’s stock during extended trading.
This remarkable earnings beat is reminiscent of February 2021 when Amazon exceeded expectations by delivering $14.09 per share in profit for the fourth quarter of 2020. The announcement of Bezos stepping down as CEO at that time also surprised investors.
Jassy, who recently completed his second year as CEO, has steered Amazon towards a leaner version of itself. Slowing sales and a challenging economy compelled the company to deviate from the relentless growth seen during Bezos’ tenure. As pressure increased from investors due to a 50% decline in the stock’s value in 2022, Jassy made significant changes, such as scaling back underperforming projects and eliminating 27,000 jobs.
During the earnings call, cost-cutting measures were emphasized by Jassy. He highlighted the steps taken to reduce expenses in the fulfillment system, including transitioning from a national network to eight separate regions serving smaller geographic areas. The broad-based changes implemented by Jassy have also reduced Amazon’s reliance on its cloud business, Amazon Web Services (AWS), for profits. While AWS beat revenue estimates in the second quarter, its profit margin declined to 24.2% from 29% the previous year.
Jassy urged investors to view AWS’ growth rate differently, considering the economic concerns faced by companies globally. He stated that the cloud unit’s ability to maintain double-digit growth on a base generating over $20 billion in sales each quarter is impressive. Jassy expressed optimism for the future growth of AWS, particularly with the expected boost from generative artificial intelligence.
Emphasizing the potential benefits of AI, Jassy highlighted that traditional forms of AI and machine learning have already driven substantial business for AWS. He anticipates further adoption of their cloud services through the rise of generative AI. However, this may require increased capital expenditures to fund Amazon’s AI initiatives.
Jassy remains positive about the challenge of investing more capital in generative AI, seeing it as an indication of customer success and increased utilization of Amazon’s services.
Investors are now looking to see if Amazon will emerge as a winner in the AI space, with the company facing growing demands that may require additional capital investments.
Sources:
– Thos Robinson | Getty Images
– https://www.cnbc.com/2022/10/27/amazon-amzn-earnings-q3-2022.html
– https://www.cnbc.com/2022/10/27/amazon-ceo-andy-jassy-wants-investors-to-think-about-aws-differently.html