Amazon reports mixed results highlighting impressive gains and areas of concern

Amazon.com, Inc. announced its financial results for the second quarter ending June 30, 2024, reporting weaker-than-expected revenue and a disappointing forecast for the current period.

While its cloud business exceeded analyst estimates, its advertising unit came up short. However, the stock is still up 21% year to date as of Thursday’s close.

eToro market analyst Farhan Badami said, "Amazon's Q2 has produced mixed earnings, highlighting both impressive gains and areas of concern. Looking ahead, Amazon's guidance for Q3 FY24 indicates expected revenue in the range of $154 billion to $158.5 billion, slightly below market expectations. 

“This cautious outlook has tempered investor enthusiasm, leading to an initial dip in the stock price. Despite this, the company continues to innovate and expand, as evidenced by the launch of new AI features and securing long-term NBA streaming rights. As the largest beneficiary of the Fed's interest rate cuts, Amazon remains well-positioned to capitalise on increased consumer spending while navigating the complexities of a fluctuating economic landscape.

“Investors have been particularly sensitive to earnings from the Magnificent Seven. Expectations for big tech are exceptionally high, and the benchmarks are stringent. Last week, we saw that even though Microsoft and Google surpassed earnings estimates in most areas, a single miss on one metric leads to investor pessimism and a drop in stock prices."

Looking at the numbers

Amazon’s net sales rose by 10% to $148.0 billion, up from $134.4 billion in the same quarter of the previous year. Adjusted for the $1.0 billion adverse impact of foreign exchange rate changes, the net sales increased by 11%.

In the North America segment, sales grew by 9% year-over-year, reaching $90.0 billion. International segment sales experienced a 7% increase, amounting to $31.7 billion, or 10% when excluding foreign exchange rate changes. The Amazon Web Services (AWS) segment demonstrated robust growth with a 19% year-over-year increase, generating $26.3 billion in sales.

Operating income for the quarter significantly increased to $14.7 billion, compared to $7.7 billion in the second quarter of 2023. The North America segment's operating income was $5.1 billion, while the International segment turned around with a $0.3 billion operating income from a $0.9 billion loss last year. The AWS segment’s operating income was $9.3 billion.

Net income more than doubled to $13.5 billion, or $1.26 per diluted share, from $6.7 billion, or $0.65 per diluted share, in the same quarter of 2023. This figure includes a pre-tax valuation gain of $0.4 billion from the company's investment in Rivian Automotive, Inc.

Operating cash flow for the trailing twelve months increased by 75% to $108.0 billion, compared to $61.8 billion in the previous period. Free cash flow also saw a significant rise to $53.0 billion, up from $7.9 billion.

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” said Andy Jassy, Amazon President & CEO. 

“As companies continue to modernise their infrastructure and move to the cloud, while also leveraging new Generative AI opportunities, AWS continues to be customers’ top choice as we have much broader functionality, superior security and operational performance, a larger partner ecosystem, and AI capabilities like SageMaker for model builders, Bedrock for those leveraging frontier models, Trainium for those where the cost of compute for training and inference matters, and Q for those wanting the most capable GenAI assistant for not just coding, but also software development and business integration.”

Amazon primed for growth

Notable highlights since the last earnings announcement include Amazon holding its 10th Prime Day, the largest to date, and delivering at its fastest speeds ever for Prime members. The company expanded its selection with new brands and launched multiple AI-powered features, including shopping assistant Rufus and playlist generator Maestro. Amazon also launched its Stores business in South Africa and expanded the RxPass program for Prime members.

In media, Amazon MGM Studios released popular titles such as Fallout and The Boys Season 4, earning 62 Primetime Emmy Award nominations. The company secured extensive streaming rights for the NBA and became the exclusive home for Monday Night National Hockey League games in Canada.

AWS announced new agreements with major companies and introduced advanced compute instances, enhancing price-performance. Amazon also formed a strategic partnership with the Australian Government to provide a “Top Secret” AWS Cloud.

Looking ahead, Amazon forecasts third-quarter net sales between $154.0 billion and $158.5 billion, an 8% to 11% growth over the third quarter of 2023. Operating income is expected to be between $11.5 billion and $15.0 billion.