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Amazon slides despite strong earnings – AWS growth in danger?

The results were not taken positively by Wall Street and the stock price decline, dragging the Nasdaq index lower today.

On Thursday, digital giant Amazon reported first-quarter results above analysts’ projections, thanks to strong retail sales and slightly higher revenues from its Web Services section.

In its earnings report for the first quarter, Amazon reported a net income of $3.2 billion, or 31 cents per share, down from the split-adjusted profit of 37 cents per share in the first quarter of 2022 but still above the 21 cents per share expected by Wall Street. Sales increased by 9.4% year over year to $127.4 billion, crushing industry forecasts of $124.5 billion.

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The contribution from Amazon Web Services was $21.4 billion, up 16% year-over-year, down 5% from the three months that ended in December, but still ahead of the $21.2 billion Wall Street had predicted. The estimated operating profit was $5.1 billion, a decrease of 21.8% from the previous year.

Amazon expects revenue of $127 billion to $133 billion this quarter, with operating income of $2 billion to $5 billion, although the Refinitiv estimate is closer to $129.8 billion. Furthermore, Amazon predicts a 20% increase in income from its third-party seller services to $29.82 billion, significantly more than the 10% growth predicted, and a 20% increase in revenue from its subscription services to $9.66 billion.

AWS growth slowed notably

Investors were taken aback when the business revealed that Amazon Web Services’ revenue growth had slowed even more in April. With a 16% increase to $21.4 billion in revenues, AWS had its slowest quarterly growth rate since Amazon began revealing AWS’s sales figures.

For a company that started out 2022 with quarterly revenues growing by roughly 40% year over year, a dip to the single digits would be a severe decline, according to some experts.

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Amazon Web Services (AWS) dominates the market for cloud computing, which it shares with competitors like Microsoft Corp. and Alphabet Inc.’s Google. For many years, the division has been Amazon’s primary source of operational revenue, funding the company’s massive expenditures in new sectors even while the core online retail business failed to achieve profitability.

From the technical perspective, the stock price is fighting for the 200-day moving average, which is near $106. The key resistance seems to be near February highs of $114, while the support is expected at the psychological level of $100, where the uptrend line from previous lows is also located.

AMZN daily chart

AMZN daily chart, source: author´s analysis, tradingview.com

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