Amazon.com reported first-quarter earnings that topped Wall Street targets amid cost-cutting by the e-commerce giant. Amazon stock fell in early trading on Friday as management's earnings call commentary raised questions over how long a slowdown in cloud computing growth will persist.
First quarter sales for the cloud computing unit, Amazon Web Services, rose 16% to $21.4 billion, slowing from 37% growth in the year-earlier period. Analysts had projected AWS growth of 15% for the March quarter.
On the Amazon earnings call, management said Amazon Web Services is seeing slower growth in April vs. Q1.
AMZN Stock: How Long Will Cloud Slowdown Last?
That spooked investors because Wall Street analysts have expected AWS revenue growth to "trough" in the June quarter of 2023, then slowly reaccelerate. However, if the U.S. economy falls into a recession, AWS's slowdown could hit bottom later.
"The unprecedented AWS deceleration represents some new multiple compression risk where clarity on reacceleration timing may take a few quarters," said RBC Capital analyst Brad Erickson in a report. "Maybe most importantly, there was no mention on the earnings call of a coming trough like last quarter, so walking away we feel less confident that Q2 or even Q3 is necessarily the trough."
At William Blair, analyst Dylan Carden said in a report: "The Street clearly remains singularly focused on AWS. Amazon is likely more exposed to high-growth technology firms that are seeing disproportionate financial hardship and need to rationalize spend. We see risk that Amazon shares could trade sideways until the Q2 print when it will likely give intra-quarter AWS growth trends, as investors try to feel out an inflection point."
Losing Cloud Share to Microsoft?
In addition, analysts say Amazon's cloud business could be losing market share to Microsoft amid the slowdown.
"AWS seems likely to lose dollar share to Microsoft's Azure in the first half of 2023," said Bank of America analyst Justin Post in a report.
The big three cloud computing giants hope artificial intelligence workloads will eventually spark a rebound.
Amazon stock rose at first jumped 12% on the initial earnings release in extended trading. But investors tempered their enthusiasm. Shares slipped 4% to close at 105.45 on the stock market today.
Reported after the market close, Amazon earnings were 31 cents a share on an adjusted basis.
Revenue for AMZN stock climbed 9% to $127.4 billion. Meanwhile, analysts expected Amazon to report earnings of 21 cents a share on revenue of $124.6 billion.
Amazon Stock: Cost Cutting Moves
Ad revenue climbed 23% to $9.51 billion, handily beating estimates of $9.05 billion.
Amazon forecast June-quarter revenue of $130 billion at the midpoint of its outlook, in line with analyst estimates.
Also, Amazon said it expects second-quarter operating income of $3.8 billion at the midpoint of its outlook, below analyst estimates for $4.4 billion.
In January, Amazon said it would lay off 18,000 workers, the largest cutback in its 28-year history. In March, it announced plans to cut another 9,000 jobs.
Heading into the Amazon earnings report, shares in the e-commerce giant were up 25% in 2023. Amazon stock holds a Relative Strength Rating of 43 out of a best-possible 99, according to IBD Stock checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
