- Operating margins hit double-digits for first time on record
- Much better cash flow ensures AI investment is funded
- Dividends still seem a long way off
Amazon (AMZN:NASDAQ) became the latest tech giant to release quarterly results after-hours Tuesday (30 Apr) and largely beat expectations as interest in AI (artificial intelligence) helped drive cloud computing growth.
These were robust results, showing its e-commerce business made money both in North America and overseas, something that hasn’t happened since 2021, while cloud giant Amazon Web Services, or AWS, posted accelerating sales growth and much stronger operating profit margins that hit double-digits for the first time on record.
Coming in at 10.7% in the quarter, that was up from 7.8% in the fourth quarter of 2023 and topped a previous best of 8.2% in Q1 2021. Overall operating profits more than tripled.
OODLES OF CASH
Cash flow was also notably improved. Amazon burned cash in 2021 and 2022, forcing it to borrow money to fund investment, before reversing strongly in 2023, and it surged again in Q1 2024. As Amazon finance chief Brian Olsavsky noted on an investor call, Amazon is now paying down debt while also building up cash reserves.
That ensures it can handle the capital expenditure demands of AI. Like other companies, Amazon executives said capex would rise this year. You can understand, then, why Amazon hasn’t followed Meta Platforms (META:NASDAQ) and Alphabet (GOOG:NASDAQ) in introducing a dividend or even spending money on stock buybacks.
‘Apart from the lack of a dividend, Amazon delivered a lot of good news for investors’, said AJ Bell’s investment director Russ Mould.
WHAT AMAZON IS CAPABLE OF
‘Dividends aside, the latest results were a shining example of what Amazon is capable of achieving. Sales, profit and cash flow continue to build, delivery is getting faster for its retail arm which is a key differentiator for the company versus competitors, and the introduction of advertising on its streaming platform provides another revenue growth lever.
‘The all-important artificial intelligence theme got its moment in the sun via the widespread launch of Amazon Q, a generative AI-powered assistant for accelerating software development and leveraging companies’ internal data’, said Mould.
Investors may have been disappointed, hence the lukewarm early share price response in after-hours trading, before rallying. Amazon stock is seen opening later today up 2.3% at $179, implying a rough 18% year-to-date gain.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Steven Frazer) and the editor of the article (Martin Gamble) own shares in AJ Bell.
