Amazon's Jassy Spurs Sales, Profit While Cutting Spending Growth

(Bloomberg) -- Amazon.com Inc. Chief Executive Officer Andy Jassy pulled off a financial double play this earnings season: generating strong revenue growth in the core e-commerce business while cutting the pace of spending. Wall Street applauded, sending the shares up about 10% in extended trading.

Since taking the reins two years ago, Jassy has brought a decidedly unsentimental perspective to the world's largest e-commerce and cloud services company. Under his direction, Amazon fired 27,000 people and pledged to keep headcount flat for the foreseeable future, whacked dozens of projects hatched during Jeff Bezos's tenure and put multiple businesses under review.

On Thursday, investors got a fresh look at the results. Second-quarter revenue increased 11% to $134.4 billion, the company said in a statement, topping estimates. Sales in the online stores category increased 4% to $53 billion. Amazon's cloud business, which typically supplies most of the company's operating profit, exceeded expectations and showed signs of stabilizing.

“The upturn in Amazon's e-commerce business is an encouraging sign for the back half of the year that should add to topline growth,” Andrew Lipsman, an analyst at Insider Intelligence, said after the results.  

Jassy's unprecedented ax-wielding paid off, too. The company's operating expenses increased 7.5% in the three months ended June 30, the slowest rate since at least 2012. Sales and marketing costs rose just 6.5%, after years of increasing by as much as a third. As a result, operating income more than doubled to $7.7 billion in the quarter.

Now, the CEO seems ready to reinvest — just as recession fears recede, and consumers say they feel better about the economy and their prospects. 

Keen to retain a competitive edge in its core online retail business, Amazon on Monday said it would double the number of facilities capable of getting orders to customers the same day. Earlier this week, Bloomberg Businessweek reported that Amazon is rebooting its grocery operation by offering fresh food delivery to shoppers without Prime subscriptions and more tightly integrating its Fresh and Whole Foods Market chains.

The company projected revenue will be $138 billion to $143 billion in the current period ending in September, compared with analysts' average estimate of $138.3 billion. Operating income will range from $5.5 billion to $8.5 billion. Analysts, on average, projected $5.41 billion.

The Seattle-based company is generating an increasing share of revenue from the more profitable business of providing services and advertising to independent merchants, who rent space on Amazon's website and in its warehouses. Advertising sales rose 22% to $10.7 billion and seller services revenue jumped 18% to $32.3 billion in the quarter.

Chief Financial Officer Brian Olsavsky said products from independent merchants represented 60% of all sales on the site, the highest ever, which contributed to growth of Amazon's seller-services revenue.

Lipsman pointed to the ad business, saying it “held up especially well this quarter, and the picture should only get brighter in (the second half of the year) with Prime Day and the holidays adding to its momentum.”

Investors were particularly concerned about Amazon Web Services, the cloud business. Quarterly sales at the unit jumped 12% to $22.1 million. While growth slowed for a sixth straight quarter, the business still produced more revenue than Wall Street expected. 

Olsavsky said growth rates for the cloud unit stabilized during the quarter and pointed to a healthy customer pipeline. AWS has been rolling out various products based on generative artificial intelligence. Some analysts believe Amazon has fallen behind Microsoft Corp. and Alphabet Inc.'s Google, which have released popular chatbots powered by the technology. Amazon denies this and says the generative AI race has barely begun.

After several difficult quarters in which Amazon had to address overspending and over hiring, it's back to showing investors a clear path to boost sales and profits at the same time, said Brian Yarbrough, an analyst at Edward D. Jones & Co.

“We think there's a nice long path here for continued growth in retail, continued growth in advertising and continued growth in cloud computing, all while boosting profits, which is a big change from the past 12 months or so,” Yarbrough said.

--With assistance from Matt Day.

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