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Shares an Amazon kind of bouncing around right now, but rallying in the after hours four point eight percent, gaining as much as six percent earlier. This after our first quarter earnings per share beat estimates. We did see that results came in way ahead of estimates, including the key AWS segment, extending the company's recent streak of beating estimates. Second quarter sales and operating income guidance did though come in a touch soft.
All right, So let's get to it with us as Bloomberg Intelligence senior Alys Putnamgoyle and Anna Ragrana on Amazon and their outlook again, the stock up about four point six percent. Gosh, not sure where to start here because there's so many moving parts, honourg let me start with you in terms of we always think about AWS, but tell us about from your perspective, what you what jumps out for you for Amazon?
Yeah, I would say AWS, Madgins. I mean, I just can't believe how big this number is. Thirty seven point six percent operating margins compared to last years twenty four percent, So that's almost you know, fourteen percent increes and that that is this phenomenal and basically shows the scalability of this business model. And you know, frankly speaking, we weren't
expecting these kinds of margins for several years out. So I think this is this should be really good signed for investors that this is really a good business model, an rock.
How do they do this? Given that Microsoft is catching up, given that Google's alphabet's Google is catching up? How did Amazon pull this off? How did they pull off these margins?
I think they did a lot of cost rationalization over the last few years. They remember all the you know, layoffs and things that we heard about, So I think that has to do with it. Now, I mean, to be very honest, I think this is going to be a time that these margins will over time go a little bit down because of new investments in generative AI and you know, things that they have to do to
expand the capacity of their data centers. So at the same time, I mean, you've never seen thirty seven point six percent margins for AWS before, all.
Right, so forgive me punam, come on in, because yeah, I mean the retail side of the business is really super important too, So talk to us about what we saw on that side.
Sure, the retail numbers were actually just in line, so they met expectations and they looked at that and advertising. I think the story really is on AWS. That's where the beat came from. But I would say, you know, the guidance is light of expectations, and that may have something to do with online because if you recall the
first quarter, it did have an earlier easter. So some of the numbers that you see on the online side being strong and inline is thanks to that earlier easter and the spring sale that they had, which wasn't there last year. So some of the weakness that we're seeing in the guidance maybe due to the online business that we'll find out when they start talking on the call.
Put what about advertising here? This is something that not just on the Prime video which is relatively new, but the business over the last few years has grown massively, and when it comes to the search function, talk to us about what you saw with advertising this quarter.
Advertising was strong, once again relatively inline with expectations to a little better. So we think that business continues to grow at a twenty plus percent clip, and we think that will continue, especially with the layering on of the Prime video advertising business. What I'd say there is. You know, when you think about the two big businesses that it has outside of retail, they're very, very high margin businesses,
both advertising and AWS. So when we see the cash flow generation that we saw in the quarter, it's really thanks to these two businesses growing at the rate that they're growing.
Anna Rock, I want to bring you back in because you know, one of the previews that we had on the Bloomberg today is, you know, Amazon earnings to bring more scrutiny for AI tethered stocks and just saying how kind of the bar was high coming off of Alphabet and Microsoft last week right where they showed, hey, listen, all this money that we're spending on AI, it's paying off for us. We're trying to kind of find where the AI story and what it's doing for Amazon. What can you tell us there?
Yeah, and if you look at it, they launched a brand new product today called Amazon Q. You're going to see a lot of new enterprise products being launched by AWS because you know, one of what there are one ways to look at it is on the consumer chat GPT kind of stuff. They're not the player over there.
They are more selling AI to corporations or large companies. Now, that's going to take time to build up, which is one of the reasons I'm saying that this high margin of thirty seven percent thirty seven point six percent on Amazon Web Services is not going to last forever. It's going to go down slowly over the next few years. Now, that's not a bad thing because in a scalable model like this to you know, be able to give some
of that back to gain revenue. I think it's it's a long term really positive sign for AWS.
Honor rog one hundred billion dollar annual revenue run rate for AWS. That number a surprise.
Oh no, I mean we have, we have, we wrote a big report and we don't see a reason why this won't be two hundred billion one day. The question only is how long it's going to take. That's the big question, is whether it's going to take five years to get there or six years, seven years. But the end markets are so large, you know, we remain confident that it's going to hit two hundred billion over the next you know, somewhere between six to seven years.
Poonam, what are they going to do? Like, what are the numbers we were just talking about with our TV colleagues. Operating cash flow increased eighty two percent to ninety nine point one billion for the trailing twelve months compared with fifty four point three billion for the trailing twelve months that ended in March thirty first, twenty twenty three. They got a lot of money coming in. Like you know, there was some speculation, do they do a dividend, do
they do buy back? Like what do you want to be seeing that they do with their cash. Certainly on the retail side of things.
I think while ad mesters would like a dividend and buy back, I think they're going to invest back in the business. So Tiana Rox points, you know, I think we are going to see capex right on the AWS side, especially, and they've said that they've said that in the past that they do plan to take Capex up there. So we do see them spending more there. But that cash
full generation is only going to go higher. You know, these margins that they're generating on the advertising business and the AWS business, and as those businesses scale even further, are going straight to the bottom line and offsetting any losses that they have. If that in the retail business, you know, you said.
To Punham that overall guidance for the company, and that seems to be the thing that was certainly we highlighted on the Bloomberg In terms of their revenue guide and second quarter net sales, they see one hundred and forty four billion tw one hundred and forty nine billion. The street estimate is above that range at one hundred and fifty point twenty one. You said, you know, might be because of the online business. What's the question you want
to be hearing? Are that analysts are asking specifically on that call.
I think the first question is how much did in earlier easter help them in the spring sale? How much did that contribute to that seven percent increase that they saw in online sales first party, because if that was a few percentage points, and that kind of answers the
question going into the second quarter. And then the other question I'd ask on the retail side is you know, how are they doing in terms of just gaining share online against these rising threats from TIMU and She and I don't know if they'll ever answer that, but clearly those things are growing very rapidly, and is there something else that they're doing to offset those competitive threats?
Honor rog I'm just taking some time to look through the cloud results here. And one thing that was notable going into this report is that there was some discussion about sales growth at AWS slowing to a record low last year, businesses cutting back on tech spending. They wanted to bring those computing bills that balloon during the pandemic
under control. Now you have Jasse out in a statement saying essentially that the combination of companies renewing their infrastructure modernization efforts and the appeal of aws's AI capabilities is reaccelerating aws's growth rate. Is that him saying companies are done cutting back on their cloud spend. Is that him saying the worst is behind us when it comes to company tiping their bell.
Yeah, And frankly speaking, he had to say that because both Microsoft and Google came up with very good numbers. Now, when you look at AWS commitments, you know, they gave out a figure called cloud commitments, which is people signing long term contracts even in the last you know, I would say one and a half to two years. Those numbers have been very strong, twenty percent, thirty percent even higher, which means people are making those commitments they're not just
using them, They're not using those cloud credits. They're just pacing themselves into a variable cost model, and then when economic conditions improve for their clients, they will, you know, get the consumption up. And that's what we're seeing right now.
Anareg, what's your number one question for the call?
The number one question is can you break out your AI workloads versus the non AI workloads on AWS? Because Microsoft's already saying so, if Microsoft sales growth has let's say, you know, thirty percent, seven percentage points of that is because of AI, I want to know that exact number for aw US. I don't think they're going to give it this time, but that that's my number one question.
Hey, we forgive us, but we got earnings crossing again right now. Shares AMD down about four point two percent in the after hours. Second quarter revenue coming in at five point four to six billion dollars estimates were for the midpoint there five point seven first quarter just atdps, did beat estimates. Should note also operating margin coming in above estimates at twenty one percent versus estimates of twenty point eight percent. First quarter capex, though coming in way
above estimates one hundred and forty two million dollars. Carrol estimates were for one hundred and eighteen point four million dollars.
Amd On now down more than five percent. In the after market, Amazon, we continue to talk about it. Their cloud unit posting the strongest sales growth in a year, a sign that the retailer's most profitable unit is recovering from a slump as businesses resume spending on technology projects. And we've seen the shares certainly rally here in the
after market. We're talking with Pudam Goyle and Honor Agrana of our intelligence Bloomberg Intelligence team put them, is there anything in here too that you get an idea of kind of how consumers are doing? Certainly, Amazon is such a great key metric when it comes to this what are you seeing in that front?
I think Amazon continues to take share. So when you look at the consumer dynamics today in retail, Amazon has been taking share. Most of the consumer is still cautious, they're still training down to value, they are spending where they want to spend, and they're spending more on staples than they are on discretionary. So I think the numbers that they've posted today show that they continue to take share, and.
I just want to point in Amazon shaares now are only up about one percent here, so they've definitely pared back some of their earlier moves.
Put them on a report like this. I see the way that Amazon is dominating when it comes to cloud, when it comes to advertising, when it comes to online retail, They're in healthcare now, They're getting everywhere. And I guess my question for you is about regulatory risk here. FTC has a suit filed against the company, and I'm wondering how investors should think about regulatory risk here. I mean, this is a close to two trillion dollar company.
Well, we have analysts that cover it on the regulatory side, and I think so far the bi opinion is that we don't see a big risk to the Amazon business as it stands today, though we also don't see a breakup happening. We put very low probability on that. You know, when you think about the different businesses that Amazon competes, and it is a dominant share in many of them, but it's also a very small share in many of them, like the few that you mentioned healthcare. You know, Amazon's
still a very small player in the healthcare business. In the grocery business where they're trying to make in roads, they're very small there. They are a large retailer, but most of their retail business is third party operated more than sixty percent. So there's arguments to be made on both sides, but our opinion at BI is that it's not going to be easy for the FTC to force a breakup here.
I see Honor rog just nodding his head from sgo right now. I'm wondering your thoughts on this an a rug and if you have anything to add when it comes to AWS, because certainly they're the dominant play. I mean, they invented the category, no question.
Yeah, but they invented the category and Microsoft's been closing that chair like for a while now, and in AI Microsoft doing far better. Googled growing much faster, Microsoft going even faster. So nobody can say that they dominate the
cloud space right now. You know, they have to watch the heels at any given time you see the number of product releases from AWS in the amount of you know, marketing they're putting behind it just to say that they're not behind Microsoft, So I would not say that they are monopoly when it comes to cloud. I mean, there's so many players at this point.
Well's so funny that you say that I'm reading to the press release right now and there's like a ton of stuff on AI. But it's a lot of It's just a lot of stuff, And I guess, you know, what are you looking for an a rag? Is you read through like what they're doing here in Amazon Q and what they're doing with salesforce? Like like what is it that you're looking for as you pars through? What's a lot of words.
Yeah, So the way you want to think about it, Microsoft disclose some numbers. When we back into that, it shows us that Microsoft just on their cloud business is generating a billion dollars a quarter at this point, which is a quarterly revenue of four billion dollars. Amazon's not going to give any close to number like that. They
are nowhere close to that. So I think that's basically shows that the competition is really tough right now and they have to launch all these products in order for enterprises or companies to embrace it so that they can down the road give that number out. So if they give a number out, I think it'll be a very very different ballgame tomorrow, but I doubt that's going to happen today.
Put on my I'm you know, in our conversations last week about meta platforms, we spoke to your colleague Man Deep, saying a lot about how advertising was, how AI had meta platforms was being used to really help with advertising, And I kind of want to frame the same question
to you. It's about e commerce and how what Amazon is doing when it comes to We talk a lot about that in the context of AWS, but how does it help the core business getting people to buy more stuff and get more stuff delivered at Amazon?
Yeah, I mean AI. Generative AI especially is crucial for retail. In fact, we think it's one of the biggest drivers to the search or the next leg of growth that you're going to see online. When you think about generative AI and you think about search, right, we go shop online, we put something in the search bar, and we get a million responses. Half of them, more than half of
them are not relevant. So as you increase the relevancy of the search, you're going to also increase conversion because you're giving customers what they want, so huge huge ROI and getting the search right. And then outside of that, you know, there is there are a lot of tools, whether it's using genai to create your marketing, to create product there are so many things that you could do with genai and on the e commerce product side that
are really beneficial to the customer experience. And in fact, you know, outfitting yourself for example, using AI tools, using visual tools to be able to create these scenarios. It's all about increasing conversion when it comes to using AI for e commerce.
All right, guys, I'm still watching shares of Amazon up about two point six percent this as it we mentioned earlier reporting a strong cloud unit sales, rising AI demand. But again that second quarter net sales forecast is a little bit light than what the street is forecasting. What could they say analog on the call that would make you a little bit more nervous because right now investors seem to be pretty pleased with this report.
Yeah, I mean in the cloud side, if they go out and say that the growth for next quarter is going to be much lower than what it is, and it's a cause for concern because their competitors have not said that. So one would imagine that if the current quarter growth rate was around seventeen percent, they should grow in that same brain sixteen seventeen percent in the next quarter. Also, if they go out inside it's only going to be ten twelve eleven, then I think that's a problem.
Same question to you put and what could they say on the call that might make you be a little bit more head in on this company.
If they say retail growth or the e commerce business has slowed to little single digits, Okay, I would be a little concerned or even turn negative.
All right, listen, We so appreciate both of you weighing in on a company that's not a little complicated. I don't know that I want to say complicated, but yeah, a lot of moving pieces and so we do. Yeah, and so great to get both of their perspectives. Put them Goyle, she's senior analysts for e commerce at a leisure off price retail on Zoom from India.
It's two am, so thank you put them.
Oh my god, we owe you, We owe you. And Anna Ragrana always so helpful when we have to go through these reports. Senior technology analyst Bloomberg Intelligence joining us from our Chicago But are really both of them, We so so appreciate the insight