02 August 2024
If you are covering Amazon’s latest financial results, please find below a comment from Mamta Valechha, consumer discretionary analyst at Quilter Cheviot:
“Like other companies, Amazon is finding itself operating in a tough consumer environment but appears to be navigating it well. Group revenues were up 10%, coming in just below the top end of expectations, with its cloud business AWS performing stronger than expected.
“Amazon has noted that customers remain very price conscious, seeking discounts and prioritising essentials over higher value purchases. However, Amazon is growing its volumes faster than competitors, and thanks to some efficient inventory management it has been able to increase its operating margin too, highlighting that it knows how to operate in these challenging times. International markets were a bit less positive with operating margins down overall, but this is as a result of some regions still seeing investments ramping up.
“Given the AI boom, investors are arguably more focused at the moment on AWS and Amazon’s plans to spend on developing AI models. AWS beat expectations with revenue up 19%, as the group lapped last year’s weaker spend by customers and benefitted from incremental AI budgets coming on board. While it is still early days, AI is now a multi-billion revenue business and Amazon is seeing increasing demand from customers. As a result, capex is going up, which shouldn’t come as a surprise, tied to AWS infrastructure, but also to build out fulfilment centres.
“The main negative from the results has been the guidance, with Q3 revenue growth expected to be a touch below previous expectations, given the challenging consumer environment. Operating margin guide also fell short of estimates reflecting the consumer shift towards lower price items, higher marketing and fulfilment costs ahead of November and December holiday shopping periods, and NFL content spend.
“As such, the share price was down after hours but it remains a company that has delivered in challenging periods before and will continue to do so. It has higher investor expectations as a result but given the demand around AI these can be met. This latest weakness could present a buying opportunity for investors.”
