Amazon’s first-quarter net sales rose 15% excluding currency moves to $181.5bn ($177.3bn expected), with growth broad-based across the group. AWS was again the standout, up 28%, its fastest growth rate in more than three years.
Operating profit rose 30% to $23.9bn ($21.0bn expected), driven by strong margin expansion across the business.
Free cash flow fell to $1.2bn on a trailing twelve-month basis, down from $25.9bn a year ago, reflecting a significant step-up in infrastructure investment as Amazon accelerated spending on AI-related capacity. Net debt, including leases, ended the quarter at $66.8bn.
For the second quarter, net sales are expected to be between $194-199bn, implying year-on-year growth of 16-19%. Operating profit is expected to be between $20-24bn, assuming Prime Day falls within the quarter.
The shares were initially down 3.3% in after-hours trading.
Our view
Amazon can still be a difficult mega-cap tech story for investors to pin down, but the latest results were a reminder that the underlying business is in very good shape. Growth was broad-based, AWS accelerated, and profitability held up well despite heavy investment across cloud, AI and the delivery network. The initial share price wobble looked more like a reaction to high expectations than a sign of anything fundamentally wrong.
The cloud business, AWS, remains the key profit engine and the clearest route for Amazon to benefit from AI. Growth has stepped up sharply, the backlog is building, and demand is still running ahead of available capacity. AWS is already huge, so delivering this kind of acceleration from such a large base is no small feat. The market may have wanted an even bigger number, but we think that’s splitting hairs.
Amazon also has more going for it than the cloud. Its retail business is in much better shape than it was a few years ago, helped by faster delivery, a more efficient fulfilment network and continued progress in grocery and same-day delivery. Prime remains a powerful customer-retention tool, while the advertising business continues to grow from a very attractive position, with ads integrated right at the point where customers are already looking to buy.
The trade-off is investment, and Amazon’s investment cycle is broad. Cloud capacity is the main focus, but the group is also investing in improving delivery speed, warehouse efficiency, grocery reach, and the wider shopping experience. Those areas should help protect its competitive position, but they can also weigh on free cash flow and margins in the near term as costs move through the income statement.
But, unlike other tech peers, Amazon investors are used to this playbook. This is a business with a long history of taking the cash it generates and spending heavily to strengthen the customer offer, expand into new areas and build infrastructure that competitors struggle to match. Markets have often rewarded that approach when it supports stronger top-line growth and opens new revenue pools.
All in, Amazon remains a high-quality business with several attractive long-term growth levers. AWS gives it a strong AI angle, retail efficiency still has room to improve, and advertising should continue to support profitability. But, after a good run, the earnings multiple is now relatively high, and heavy investment leaves less room for disappointment if growth or margins fall short.
Environmental, social and governance risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Amazon’s overall management of material ESG issues is strong.
There are no significant ongoing risk events, and ESG reporting is fully aligned with industry best practice. Amazon provides good detail on how it manages major business risks, including data privacy, cybersecurity and human rights across its supply chain. However, think there is scope for stronger oversight of the environmental and social impact of its products, as well as how it manages water use.
Amazon key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.