Why Are Amazon’s “Earnings” Useless? AMZN Q1 2023 Earnings Analysis

TL;DR

Amazon’s reported earnings are less useful for evaluating its operations because changes in the value of its Rivian investment distort net income and earnings per share. In Q1 2023, revenue rose 9% to $127 billion, operating income increased 30%, and trailing-12-month free cash flow improved to negative $3.3 billion. Read on to understand the AWS slowdown, cost controls, margins, and more meaningful performance measures.

Transcript

Amazon stock selling off an early morning trading on Friday in response to reporting first quarter 2023 results what happened this quarter that has investors upset and what is going on with Amazon today there's a lot to dig into let's talk Amazon's results and valuation and more my name is Brian Frawley as of the time it's recording I do own shares... Read More

Key Insights

• ❓ Amazon's Q1 2023 results exceeded expectations with Revenue growth and improved operating income.
• 🎮 Expense control measures have positively impacted Amazon's overall profitability.
• 🌸 Concerns over AWS slowdown and international segment losses pose challenges for Amazon.
• 😷 Acquiring One Medical and positive advertising revenue growth highlight Amazon's diversification strategy.
• 🎮 Cost control remains a priority for Amazon as they aim to optimize profitability.
• 🤩 Operating margin and free cash flow turnaround are key metrics to watch for Amazon's future success.
• 😀 Amazon's valuation reflects its dominance but faces challenges in optimizing profitability.

Questions & Answers

Q: Why are Amazon’s earnings considered useless in this AMZN Q1 2023 analysis?

Amazon’s Rivian investment affects other income whenever Rivian’s stock price changes, distorting Amazon’s net income and earnings per share. The Rivian-related loss was $8.5 billion in the year-ago period versus $400 million this quarter, so the analysis considers operating income more meaningful.

Q: What were Amazon’s key Q1 2023 financial results?

Revenue grew 9% to $127 billion, exceeding Wall Street’s estimate and the high end of management’s guidance. Earnings per share reached 31 cents, while operating income increased 30% year over year as sales grew 9.5% and costs rose 9%.

Q: Why did Amazon stock sell off after its Q1 2023 results?

Investors reacted to slowing growth at Amazon Web Services, which the analysis describes as Amazon’s current cash cow. Management said the AWS growth rate in April was about 500 basis points below the Q1 rate as customers sought ways to reduce spending.

Q: How did Amazon Web Services perform in Q1 2023?

AWS sales grew 16%, but operating income declined 26%. The segment continued to generate healthy profits, although those profits were under pressure as Amazon kept investing and customer spending slowed.

Q: How did Amazon’s North American and international segments perform?

North American revenue increased 11%, and the segment returned to producing operating income after generating operating losses. International revenue rose 9% on a foreign-exchange-neutral basis, but the segment recorded a $1.2 billion operating loss.

Q: Did Amazon’s free cash flow improve in Q1 2023?

Trailing-12-month free cash flow improved to negative $3.3 billion from a negative $18.6 billion at the same time the previous year. The analysis says the figure was trending back toward breakeven as Amazon focused on expense control.

Q: What did Amazon’s margins and balance sheet show?

Operating margin improved to 3.7%, while gross margin increased slightly. Amazon had $64 billion in cash and $67 billion in debt, leaving its balance sheet roughly debt neutral.

Q: What should investors monitor after Amazon’s Q1 2023 report?

Key areas include operating margin, expense control, capital expenditures, AWS growth, international losses, and progress toward positive free cash flow. Investors should also watch dilution because Amazon’s share count rose 2% year over year, above the analysis’s preferred maximum of 1% for a company of this scale.

Summary & Key Takeaways

• Amazon's Q1 2023 Revenue grew by 9%, surpassing estimates.

• Expense control strategies led to improved operating income.

• Concerns over AWS slowdown affected overall profitability.