Amazon raises investor fears of continued slowing cloud growth

Seattle – Amazon.com, having reported strong quarterly sales in its cloud computing division, jolted investors when executives revealed that revenue growth in the unit has slowed so far in April. The shares erased a jump of almost 12 per cent.

Amazon Web Services (AWS) sales rose 16 per cent to US$21.4 billion (S$28.6 billion) in the three-month period ended March 31, more than Wall Street projected, although revenue growth at the cloud unit declined for the fifth straight quarter. Some analysts have speculated that a slowdown in corporate technology spending could push the cloud unit’s growth rates to single digits later this year.

On the conference call after the results were released, executives said AWS revenue growth rates in April are running about 500 basis points lower than the cloud unit’s first-quarter pace.

The shares, which reached a high of US$123, gave up all of those gains after the comments, declining to a low of US$107.25. The stock closed at US$109.82 in New York and had gained 31 per cent this year up till Thursday.

The world’s largest online retailer and cloud computing provider has been working for over a year to streamline its businesses to adjust to slowing sales growth in online shopping and its AWS division. The company is cutting 27,000 jobs, the largest such cull in its history, with the

latest

round of

layoffs announced on Wednesday

landing mostly on AWS employees.

The earnings reflect an ongoing shift in Amazon’s business model away from buying goods directly from manufacturers and selling them itself. An increasing share of revenue is coming from the more profitable business of providing services and advertising to independent merchants who rent space on Amazon’s website and in its warehouses. Advertising sales rose more than 21 per cent to US$9.51 billion and seller services jumped 18 per cent to US$29.8 billion in the quarter.

Sales in Amazon’s online stores category – the company’s original business – were flat compared with a year ago, and down about 4 per cent from the same period in 2021.

AWS is less profitable than it was a year ago, which is partly the result of discounts the company offered to customers in exchange for longer-term contracts, chief financial officer Brian Olsavsky said on a call with reporters.

Amazon’s results also suggest the company’s efforts to reduce costs are starting to pay off. Operating expenses increased 8.7 per cent in the quarter, the slowest pace in at least a decade.

The Seattle-based company employed almost 1.47 million people as at March 31, a decrease of 10 per cent from the period a year earlier and down from more than 1.54 million workers three months earlier.

Amazon’s positive results follow good news this week from fellow big tech companies Alphabet, Microsoft and Facebook owner Meta Platforms. Microsoft reported sustained sales for its public cloud business, while Alphabet’s Google Cloud produced a profit for the first time. Meta’s digital advertising business rebounded, returning the company to sales growth after three straight quarters of decline.

Some analysts say Amazon has more work to do.

“We keep waiting for profit and cash flow to turn here,” said Mr Stefan Slowinski, an analyst at BNP Paribas Exane. “With all of the headlines on restructuring and closure of businesses, we are really not getting that coming through in the numbers.”

Amazon projected sales of US$127 billion to US$133 billion in the current period ending in June and an operating profit of US$2 billion to US$5.5 billion. Both were in line with estimates. bloomberg