Amazon cost cuts lift operating margin to double digits for first time

104793114 GettyImages 670451716

104793114 GettyImages 670451716

Andy Jassy, CEO of Amazon, spoke during the ceremonial ribbon cutting before the Seattle Kraken’s opening night at the Climate Pledge Arena on October 22, 2021, in Seattle. Amazon has been known for prioritizing growth over profit for most of its 27 years as a public company, but now, that dynamic has changed. In the first quarter earnings report, Amazon’s operating margin reached double digits for the first time, climbing to 10.7%, up from 7.8% in the previous quarter and surpassing the previous high of 8.2% in the first quarter of 2021. This shift has been attributed to CEO Andy Jassy’s cost-cutting measures and the growth of higher-margin businesses like advertising and cloud computing. Operating income tripled to $15.3 billion, and net income rose over 200% to $10.4 billion.

Amazon shares rose by about 1% in extended trading, reflecting a 15% increase for the year. Revenue at Amazon Web Services increased by 17%, surpassing Wall Street’s expectations. AWS contributed almost two-thirds of Amazon’s operating income and is now generating over $100 billion in annualized revenue. Digital advertising revenue also grew significantly by 24% to $11.8 billion in the first quarter. Amazon’s retail business has become more efficient due to restructuring efforts that optimize logistics and reduce costs.

Despite layoffs and cost-cutting measures, Amazon expects continued profitability in the second quarter, with operating income projected to be between $10 billion and $14 billion, and revenue estimated to increase by 7% to 11%. CEO Jassy is making investments in generative artificial intelligence, particularly in the cloud business. This strategic focus on AI services and infrastructure investments will lead to a meaningful increase in capital expenditures for Amazon in 2024. Amazon, along with cloud peers Microsoft and Google, has ramped up capital spending to meet the growing demand for cloud and AI services.

Andy Jassy, CEO of Amazon, spoke at the ceremonial ribbon cutting for the Seattle Kraken at the Climate Pledge Arena. In the first quarter of 2021, Amazon’s operating margin reached a record high of 10.7%, with operating income more than tripling to $15.3 billion. This growth was driven by cost cuts and stronger growth in higher-margin businesses like advertising and cloud computing.

AWS revenue increased by 17% in the first quarter, exceeding Wall Street expectations. Digital advertising also saw significant growth, with ad revenue increasing by 24%. The company has focused on cost control and improving efficiency in its retail business through measures like regionalization efforts.

Amazon has reduced its workforce by more than 27,000 jobs since late 2022, with layoffs impacting various departments, including health and AWS. Technology and infrastructure costs have decreased, along with sales and marketing expenses. Other general and administrative costs have also been cut by 10%.

Looking ahead, Amazon expects continued profitability in the second quarter, with operating income projected to be between $10 billion and $14 billion. Despite a more measured pace of growth, the company anticipates revenue to increase by 7% to 11% in the second quarter.

Jassy has endorsed investments in generative artificial intelligence, particularly in the cloud business. Amazon plans to increase its capital expenditures in 2024 compared to previous years, as it continues to invest in AI services and AWS infrastructure.

Overall, Amazon’s strong financial performance in the first quarter reflects Jassy’s focus on improving margins and profitability through cost cuts and investments in high-margin businesses like advertising and cloud computing.

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