Amazon’s stock has reached all-time highs after beating expectations in its latest earnings report. The company is close to joining the $2 Trillion Club, driven by a 17% YoY growth in AWS and a 25% growth in advertising revenue. Both segments combined for $37 billion in revenue, with estimates pointing to a potential $160 billion run rate by the end of 2024.
Despite being known for e-commerce, AWS and advertising are the core engines of growth for Amazon. AWS achieved a $100 billion annualized run rate in Q1, contributing significantly to the company’s operating income growth. Strong advertising growth, coupled with AI advancements in AWS and an increased cash flow margin, are supporting Amazon’s push to new highs.
In the first quarter, Amazon beat revenue estimates by $0.8 billion, with EPS increasing 216% YoY. Operating income surged 221% YoY, reaching $15.3 billion. AWS and North America contributed significantly to this growth, with AWS generating more than 61% of Amazon’s total operating income despite accounting for less than 18% of revenue in the quarter. The company is also showing improvements in gross and operating margins.
AWS re-accelerated to 17% YoY growth in Q1, with CEO Andy Jassy attributing this partly to increased demand for AI capabilities. The segment is benefiting from strong demand for generative AI offerings, with operating expenses declining YoY. Amazon is also investing in increasing GPU supply and improving availability of its in-house chips to meet growing demand.
Advertising revenue is Amazon’s fastest-growing segment, with a 24% YoY growth to $11.8 billion in Q1. Amazon is optimistic about the potential for Prime Video ads, which could generate significant revenue. Analysts estimate that Amazon could earn billions in advertising revenue from Prime Video this year, further boosting the company’s financials.
AWS and advertising are expected to exit 2024 at a combined $160 billion run rate, contributing to Amazon’s overall revenue and margin expansion. Strong growth in operating cash flow is projected for 2024 and 2025, further enhancing the company’s financial position. Despite recent share price increases, Amazon’s valuation remains attractive, with potential for further growth based on the performance of its key segments.
In conclusion, Amazon’s strong performance in AWS and advertising, coupled with steady cash flow growth, positions the company for continued success and potential valuation expansion in the future. The company’s focus on AI and advertising platforms, along with strategic investments in hardware and infrastructure, bode well for its continued growth and market leadership.
Article Source
https://www.forbes.com/sites/bethkindig/2024/05/17/amazon-stock-nearing-2-trillion-club-from-aws-growth–ads-catalyst/