Caixin News Agency, August 2nd (Editor Huang Junzhi) After Thursday's trading hours Eastern Time, Amazon released a second quarter financial report that was "not entirely arbitrary". Despite exceeding expectations in profits and cloud computing sales for the quarter, the company's performance guidance for the next quarter has disappointed investors and raised doubts about whether the massive investment in AI can truly generate corresponding returns.
Affected by this financial report, Amazon's stock price fell 7.69% in after hours trading. However, the stock has still risen by over 22% so far this year.
According to the financial report, Amazon's net sales in the second quarter were $147.98 billion, lower than analysts' expectations of $148.78 billion; Operating profit of 14.67 billion US dollars, higher than analysts' expectations of 13.59 billion US dollars; Earnings per share of $1.26, analysts expect $1.04; The operating profit margin was 9.9%, a year-on-year increase of 5.7 percentage points, and analysts expected 9.13%.
In terms of business segmentation, the strong performance of cloud computing business was offset by the weakness of Amazon's main e-commerce business. The CEO of the company, Andy Jassy, has been cutting costs and focusing on the profitability of the company's main online retail business. Chief Financial Officer Brian Olsavsky told reporters on a conference call that consumers "continue to be cautious and reduce spending
He added that products with lower prices sell well. Jassy also agrees with this. Not only Amazon, but also Oreo manufacturers Mondelez and Pepsi have recently made similar statements.
Amazon's online retail business is facing fierce competition from low-cost retailers such as Temu and Shein, who sell a variety of products directly from China at relatively low prices.
Specifically, Amazon's e-commerce net sales in the second quarter were $55.39 billion, a year-on-year increase of 4.6%, lower than analysts' expectations of $55.55 billion; AWS business net sales were $26.28 billion, a year-on-year increase of 18.7%, and analysts expect $25.98 billion,; The net sales of advertising business were 12.77 billion US dollars, a year-on-year increase of 19.5%, and analysts expected 13 billion US dollars.
Performance guidance
Amazon expects net sales in the third quarter to be between $154 billion and $158.5 billion, with analysts expecting $158.43 billion; The operating profit was between $11.5 billion and $15 billion, both of which were lower than analysts' expectations of $15.66 billion.
AI investment
As is well known, since the AI craze swept the world, tech giants have invested huge amounts of money in this field one after another, and Amazon is no exception. In its latest financial report, Amazon stated that it will "increase its efforts" and once referred to AI services as a business representing "billions of dollars in revenue conversion rates".
Olsavsky stated that in the first half of this year, Amazon spent $35 billion on capital expenditures such as data centers in its network services cloud division, and will increase this number in the second half of the year. He said, "We see strong demand for both generative and non generative AI workloads
However, some analysts commented based on the above performance guidance that the lower than expected profit guidance indicates that Amazon has invested more funds than expected in the competition to meet the demand for AI services.
Moreover, investors are becoming impatient with tech giants constantly burning money but rarely seeing returns.
Microsoft announced on Tuesday that its Azure cloud computing business growth has slowed down and stated that it expects to continue investing heavily in data centers. The next day, Meta also emphasized that capital expenditures will increase significantly in 2025, with infrastructure costs being an important driving factor, which will continue to support AI research and product development efforts.
Last week, Google's parent company Alphabet Inc. announced a significant increase in costs, which surprised Wall Street and overshadowed better than expected quarterly sales. CEO Pichai emphasized that for Alphabet, the risk of underinvestment in the AI field far outweighs the risk of overinvestment.
DA Davidson analyst Gil Luria said, "Investors are starting to adapt to the more stable profitability of the retail business, but Amazon has been investing heavily at the expense of short-term profit margins, and it seems they are planning to invest heavily for the rest of this year. The good news is that as AWS's growth accelerates to 19%, returns seem to have arrived