What drove the large increase in Amazon's operating income this quarter?

Operating income rose to $15.3 billion from $4.8 billion, driven mainly by AWS, whose operating income grew to $9.4 billion from $5.1 billion on 17% sales growth. North America improved to $5.0 billion from $0.9 billion, and International swung from a $1.2 billion loss to a $0.9 billion profit. Management pointed to cost-to-serve efficiencies and faster delivery in the retail business alongside AWS strength.

Why did net income grow less than operating income?

Net income rose to $10.4 billion, but non-operating expense increased to $2.3 billion from $0.7 billion. This was largely due to a $2.0 billion pre-tax valuation loss on Amazon's Rivian stake, compared with a $0.5 billion loss a year earlier. Income tax provision also rose to $2.5 billion from $0.9 billion.

Is Amazon generating meaningful free cash flow now?

Yes. Trailing twelve-month free cash flow was a $50.1 billion inflow, compared with a $3.3 billion outflow a year earlier. Operating cash flow of $99.1 billion more than covered capital expenditures net of proceeds, which were about $49.0 billion on a trailing basis. Amazon also presents stricter measures that deduct finance lease principal repayments, which were still positive at $46.1 billion and $48.8 billion.

What does the second quarter 2024 guidance imply for investors?

Guidance of $144.0 to $149.0 billion in net sales implies 7% to 11% growth, a slowdown from Q1's 13%, and includes roughly 60 basis points of FX headwind. Operating income guidance of $10.0 to $14.0 billion would be a sequential decline from Q1's $15.3 billion and compares with $7.7 billion in Q2 2023. Amazon noted that Q1 benefited from about 120 basis points of leap-year impact, which does not recur in Q2.

What is the significance of the AWS growth rebound?

AWS sales grew 17% to $25.0 billion, up from 12% to 13% in the prior two quarters, and the segment's margin rose to 37.6%. Management attributed the reacceleration to companies renewing infrastructure modernization efforts and demand for generative AI capabilities such as Amazon Bedrock. AWS now has a $100 billion annual revenue run rate, making it the key driver of Amazon's profitability.

AMZN 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed April 30, 2024. Cited figures are marked; the original filing is the authoritative source.

Amazon.com reported first quarter 2024 results on April 30, 2024, with net sales up 13% year over year to $143.3 billion^a (13% excluding a $0.2 billion unfavorable FX impact).

Growth was broad-based: North America sales rose 12% to $86.3 billion^b, International rose 10% to $31.9 billion, and AWS rose 17% to $25.0 billion. Operating income more than tripled to $15.3 billion from $4.8 billion, with operating margin reaching 10.7% versus 3.7% a year earlier. AWS was the main profit engine, contributing $9.4 billion of operating income at a 37.6% margin, while North America earned $5.0 billion and International swung to a $0.9 billion profit from a $1.2 billion loss.

Net income rose to $10.4 billion^c, or $0.98 per diluted share, though it absorbed a $2.0 billion pre-tax valuation loss on the Rivian stake. Cash generation improved sharply. Trailing twelve-month operating cash flow reached $99.1 billion, up 82%, and free cash flow turned to a $50.1 billion inflow from a $3.3 billion outflow a year earlier.

Management attributed the AWS reacceleration to renewed infrastructure modernization and demand for generative AI services, and noted that AWS now runs at a $100 billion^d annual revenue run rate. For the second quarter of 2024, Amazon guided to net sales of $144.0 to $149.0 billion (7% to 11% growth) and operating income of $10.0 to $14.0 billion, compared with $7.7 billion a year earlier.

The guidance implies a sequential moderation in profit from the first quarter's level and includes roughly 60 basis points of unfavorable FX impact. The filing itself is a routine Item 2.02 disclosure furnishing the earnings release and non-GAAP reconciliation language; it contains no new material agreements or governance changes.

02—Key points

Key Highlights

Net sales rose 13% year over year to $143.3 billion, with North America up 12%, International up 10%, and AWS up 17%.
Operating income more than tripled to $15.3 billion from $4.8 billion, lifting operating margin to 10.7% from 3.7%.
AWS delivered $9.4 billion of operating income on a 37.6% segment margin, the largest profit contributor, and International turned profitable at $0.9 billion.
Net income reached $10.4 billion ($0.98 per diluted share) versus $3.2 billion ($0.31) a year earlier, despite a $2.0 billion pre-tax loss on the Rivian investment.
Trailing twelve-month operating cash flow grew 82% to $99.1 billion, and free cash flow swung to a $50.1 billion inflow from a $3.3 billion outflow.
Q2 2024 guidance calls for net sales of $144.0 to $149.0 billion (7% to 11% growth) and operating income of $10.0 to $14.0 billion, versus $7.7 billion in Q2 2023.
Total stockholders' equity rose to $216.7 billion at March 31, 2024, while long-term debt declined modestly to $57.6 billion.

03—Questions

Frequently Asked Questions

What drove the large increase in Amazon's operating income this quarter?
Operating income rose to $15.3 billion from $4.8 billion, driven mainly by AWS, whose operating income grew to $9.4 billion from $5.1 billion on 17% sales growth. North America improved to $5.0 billion from $0.9 billion, and International swung from a $1.2 billion loss to a $0.9 billion profit. Management pointed to cost-to-serve efficiencies and faster delivery in the retail business alongside AWS strength.
Why did net income grow less than operating income?
Net income rose to $10.4 billion, but non-operating expense increased to $2.3 billion from $0.7 billion. This was largely due to a $2.0 billion pre-tax valuation loss on Amazon's Rivian stake, compared with a $0.5 billion loss a year earlier. Income tax provision also rose to $2.5 billion from $0.9 billion.
Is Amazon generating meaningful free cash flow now?
Yes. Trailing twelve-month free cash flow was a $50.1 billion inflow, compared with a $3.3 billion outflow a year earlier. Operating cash flow of $99.1 billion more than covered capital expenditures net of proceeds, which were about $49.0 billion on a trailing basis. Amazon also presents stricter measures that deduct finance lease principal repayments, which were still positive at $46.1 billion and $48.8 billion.
What does the second quarter 2024 guidance imply for investors?
Guidance of $144.0 to $149.0 billion in net sales implies 7% to 11% growth, a slowdown from Q1's 13%, and includes roughly 60 basis points of FX headwind. Operating income guidance of $10.0 to $14.0 billion would be a sequential decline from Q1's $15.3 billion and compares with $7.7 billion in Q2 2023. Amazon noted that Q1 benefited from about 120 basis points of leap-year impact, which does not recur in Q2.
What is the significance of the AWS growth rebound?
AWS sales grew 17% to $25.0 billion, up from 12% to 13% in the prior two quarters, and the segment's margin rose to 37.6%. Management attributed the reacceleration to companies renewing infrastructure modernization efforts and demand for generative AI capabilities such as Amazon Bedrock. AWS now has a $100 billion annual revenue run rate, making it the key driver of Amazon's profitability.

04—Continue

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