April 30, 2024 • 16 mins
Amazon's cloud unit posted the strongest sales growth in a year, a sign that the retailer’s most profitable unit is recovering from a slump as businesses resume spending on technology projects. The shares rose in extended trading.
Bloomberg TV and Radio hosts Carol Massar and Tim Stenovec speak with Bloomberg Intelligence Senior Analyst for E-Commerce Poonam Goyal and Bloomberg Intelligence Senior Technology Analyst Anurag Rana for instant reaction and analysis.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
Shares an Amazon kind of bouncing around right now, but
rallying in the after hours four point eight percent, gaining
as much as six percent earlier. This after our first
quarter earnings per share beat estimates. We did see that
results came in way ahead of estimates, including the key
AWS segment, extending the company's recent streak of beating estimates.
Second quarter sales and operating income guidance did though come
(00:29):
in a touch soft.
Speaker 1 (00:30):
All right, So let's get to it with us as
Bloomberg Intelligence senior Alys Putnamgoyle and Anna Ragrana on Amazon
and their outlook again, the stock up about four point
six percent. Gosh, not sure where to start here because
there's so many moving parts, honourg let me start with
you in terms of we always think about AWS, but
tell us about from your perspective, what you what jumps
(00:51):
out for you for Amazon?
Speaker 3 (00:53):
Yeah, I would say AWS, Madgins. I mean, I just
can't believe how big this number is. Thirty seven point
six percent operating margins compared to last years twenty four percent,
So that's almost you know, fourteen percent increes and that
that is this phenomenal and basically shows the scalability of
this business model. And you know, frankly speaking, we weren't
(01:14):
expecting these kinds of margins for several years out. So
I think this is this should be really good signed
for investors that this is really a good business model,
an rock.
Speaker 2 (01:24):
How do they do this? Given that Microsoft is catching up,
given that Google's alphabet's Google is catching up? How did
Amazon pull this off? How did they pull off these margins?
Speaker 3 (01:37):
I think they did a lot of cost rationalization over
the last few years. They remember all the you know,
layoffs and things that we heard about, So I think
that has to do with it. Now, I mean, to
be very honest, I think this is going to be
a time that these margins will over time go a
little bit down because of new investments in generative AI
and you know, things that they have to do to
(01:57):
expand the capacity of their data centers. So at the
same time, I mean, you've never seen thirty seven point
six percent margins for AWS before, all.
Speaker 1 (02:06):
Right, so forgive me punam, come on in, because yeah,
I mean the retail side of the business is really
super important too, So talk to us about what we
saw on that side.
Speaker 4 (02:15):
Sure, the retail numbers were actually just in line, so
they met expectations and they looked at that and advertising.
I think the story really is on AWS. That's where
the beat came from. But I would say, you know,
the guidance is light of expectations, and that may have
something to do with online because if you recall the
first quarter, it did have an earlier easter. So some
(02:37):
of the numbers that you see on the online side
being strong and inline is thanks to that earlier easter
and the spring sale that they had, which wasn't there
last year. So some of the weakness that we're seeing
in the guidance maybe due to the online business that
we'll find out when they start talking on the call.
Speaker 2 (02:52):
Put what about advertising here? This is something that not
just on the Prime video which is relatively new, but
the business over the last few years has grown massively,
and when it comes to the search function, talk to
us about what you saw with advertising this quarter.
Speaker 4 (03:08):
Advertising was strong, once again relatively inline with expectations to
a little better. So we think that business continues to
grow at a twenty plus percent clip, and we think
that will continue, especially with the layering on of the
Prime video advertising business. What I'd say there is. You know,
when you think about the two big businesses that it
has outside of retail, they're very, very high margin businesses,
(03:28):
both advertising and AWS. So when we see the cash
flow generation that we saw in the quarter, it's really
thanks to these two businesses growing at the rate that
they're growing.
Speaker 1 (03:37):
Anna Rock, I want to bring you back in because
you know, one of the previews that we had on
the Bloomberg today is, you know, Amazon earnings to bring
more scrutiny for AI tethered stocks and just saying how
kind of the bar was high coming off of Alphabet
and Microsoft last week right where they showed, hey, listen,
all this money that we're spending on AI, it's paying
off for us. We're trying to kind of find where
(03:58):
the AI story and what it's doing for Amazon. What
can you tell us there?
Speaker 3 (04:03):
Yeah, and if you look at it, they launched a
brand new product today called Amazon Q. You're going to
see a lot of new enterprise products being launched by
AWS because you know, one of what there are one
ways to look at it is on the consumer chat
GPT kind of stuff. They're not the player over there.
They are more selling AI to corporations or large companies. Now,
that's going to take time to build up, which is
(04:25):
one of the reasons I'm saying that this high margin
of thirty seven percent thirty seven point six percent on
Amazon Web Services is not going to last forever. It's
going to go down slowly over the next few years. Now,
that's not a bad thing because in a scalable model
like this to you know, be able to give some
of that back to gain revenue. I think it's it's
a long term really positive sign for AWS.
Speaker 2 (04:47):
Honor rog one hundred billion dollar annual revenue run rate
for AWS. That number a surprise.
Speaker 3 (04:57):
Oh no, I mean we have, we have, we wrote
a big report and we don't see a reason why
this won't be two hundred billion one day. The question
only is how long it's going to take. That's the
big question, is whether it's going to take five years
to get there or six years, seven years. But the
end markets are so large, you know, we remain confident
that it's going to hit two hundred billion over the
next you know, somewhere between six to seven years.
Speaker 1 (05:19):
Poonam, what are they going to do? Like, what are
the numbers we were just talking about with our TV colleagues.
Operating cash flow increased eighty two percent to ninety nine
point one billion for the trailing twelve months compared with
fifty four point three billion for the trailing twelve months
that ended in March thirty first, twenty twenty three. They
got a lot of money coming in. Like you know,
there was some speculation, do they do a dividend, do
(05:40):
they do buy back? Like what do you want to
be seeing that they do with their cash. Certainly on
the retail side of things.
Speaker 4 (05:46):
I think while ad mesters would like a dividend and
buy back, I think they're going to invest back in
the business. So Tiana Rox points, you know, I think
we are going to see capex right on the AWS side, especially,
and they've said that they've said that in the past
that they do plan to take Capex up there. So
we do see them spending more there. But that cash
full generation is only going to go higher. You know,
these margins that they're generating on the advertising business and
(06:08):
the AWS business, and as those businesses scale even further,
are going straight to the bottom line and offsetting any
losses that they have. If that in the retail business,
you know, you said.
Speaker 1 (06:18):
To Punham that overall guidance for the company, and that
seems to be the thing that was certainly we highlighted
on the Bloomberg In terms of their revenue guide and
second quarter net sales, they see one hundred and forty
four billion tw one hundred and forty nine billion. The
street estimate is above that range at one hundred and
fifty point twenty one. You said, you know, might be
because of the online business. What's the question you want
(06:40):
to be hearing? Are that analysts are asking specifically on
that call.
Speaker 4 (06:45):
I think the first question is how much did in
earlier easter help them in the spring sale? How much
did that contribute to that seven percent increase that they
saw in online sales first party, because if that was
a few percentage points, and that kind of answers the
question going into the second quarter. And then the other
question I'd ask on the retail side is you know,
how are they doing in terms of just gaining share
online against these rising threats from TIMU and She and
(07:09):
I don't know if they'll ever answer that, but clearly
those things are growing very rapidly, and is there something
else that they're doing to offset those competitive threats?
Speaker 2 (07:17):
Honor rog I'm just taking some time to look through
the cloud results here. And one thing that was notable
going into this report is that there was some discussion
about sales growth at AWS slowing to a record low
last year, businesses cutting back on tech spending. They wanted
to bring those computing bills that balloon during the pandemic
under control. Now you have Jasse out in a statement
(07:41):
saying essentially that the combination of companies renewing their infrastructure
modernization efforts and the appeal of aws's AI capabilities is
reaccelerating aws's growth rate. Is that him saying companies are
done cutting back on their cloud spend. Is that him
saying the worst is behind us when it comes to
company tiping their bell.
Speaker 3 (08:02):
Yeah, And frankly speaking, he had to say that because
both Microsoft and Google came up with very good numbers. Now,
when you look at AWS commitments, you know, they gave
out a figure called cloud commitments, which is people signing
long term contracts even in the last you know, I
would say one and a half to two years. Those
numbers have been very strong, twenty percent, thirty percent even higher,
(08:22):
which means people are making those commitments they're not just
using them, They're not using those cloud credits. They're just
pacing themselves into a variable cost model, and then when
economic conditions improve for their clients, they will, you know,
get the consumption up. And that's what we're seeing right now.
Speaker 1 (08:38):
Anareg, what's your number one question for the call?
Speaker 3 (08:42):
The number one question is can you break out your
AI workloads versus the non AI workloads on AWS? Because
Microsoft's already saying so, if Microsoft sales growth has let's say,
you know, thirty percent, seven percentage points of that is
because of AI, I want to know that exact number
for aw US. I don't think they're going to give
it this time, but that that's my number one question.
Speaker 2 (09:05):
Hey, we forgive us, but we got earnings crossing again
right now. Shares AMD down about four point two percent
in the after hours. Second quarter revenue coming in at
five point four to six billion dollars estimates were for
the midpoint there five point seven first quarter just atdps,
did beat estimates. Should note also operating margin coming in
(09:26):
above estimates at twenty one percent versus estimates of twenty
point eight percent. First quarter capex, though coming in way
above estimates one hundred and forty two million dollars. Carrol
estimates were for one hundred and eighteen point four million dollars.
Speaker 1 (09:39):
Amd On now down more than five percent. In the
after market, Amazon, we continue to talk about it. Their
cloud unit posting the strongest sales growth in a year,
a sign that the retailer's most profitable unit is recovering
from a slump as businesses resume spending on technology projects.
And we've seen the shares certainly rally here in the
after market. We're talking with Pudam Goyle and Honor Agrana
(10:00):
of our intelligence Bloomberg Intelligence team put them, is there
anything in here too that you get an idea of
kind of how consumers are doing? Certainly, Amazon is such
a great key metric when it comes to this what
are you seeing in that front?
Speaker 4 (10:14):
I think Amazon continues to take share. So when you
look at the consumer dynamics today in retail, Amazon has
been taking share. Most of the consumer is still cautious,
they're still training down to value, they are spending where
they want to spend, and they're spending more on staples
than they are on discretionary. So I think the numbers
that they've posted today show that they continue to take share, and.
Speaker 1 (10:36):
I just want to point in Amazon shaares now are
only up about one percent here, so they've definitely pared
back some of their earlier moves.
Speaker 2 (10:42):
Put them on a report like this. I see the
way that Amazon is dominating when it comes to cloud,
when it comes to advertising, when it comes to online retail,
They're in healthcare now, They're getting everywhere. And I guess
my question for you is about regulatory risk here. FTC
has a suit filed against the company, and I'm wondering
how investors should think about regulatory risk here. I mean,
(11:04):
this is a close to two trillion dollar company.
Speaker 4 (11:08):
Well, we have analysts that cover it on the regulatory side,
and I think so far the bi opinion is that
we don't see a big risk to the Amazon business
as it stands today, though we also don't see a
breakup happening. We put very low probability on that. You know,
when you think about the different businesses that Amazon competes,
and it is a dominant share in many of them,
(11:31):
but it's also a very small share in many of them,
like the few that you mentioned healthcare. You know, Amazon's
still a very small player in the healthcare business. In
the grocery business where they're trying to make in roads,
they're very small there. They are a large retailer, but
most of their retail business is third party operated more
than sixty percent. So there's arguments to be made on
both sides, but our opinion at BI is that it's
(11:54):
not going to be easy for the FTC to force
a breakup here.
Speaker 2 (11:58):
I see Honor rog just nodding his head from sgo
right now. I'm wondering your thoughts on this an a
rug and if you have anything to add when it
comes to AWS, because certainly they're the dominant play. I mean,
they invented the category, no question.
Speaker 3 (12:09):
Yeah, but they invented the category and Microsoft's been closing
that chair like for a while now, and in AI
Microsoft doing far better. Googled growing much faster, Microsoft going
even faster. So nobody can say that they dominate the
cloud space right now. You know, they have to watch
the heels at any given time you see the number
of product releases from AWS in the amount of you know,
(12:30):
marketing they're putting behind it just to say that they're
not behind Microsoft, So I would not say that they
are monopoly when it comes to cloud. I mean, there's
so many players at this point.
Speaker 1 (12:39):
Well's so funny that you say that I'm reading to
the press release right now and there's like a ton
of stuff on AI. But it's a lot of It's
just a lot of stuff, And I guess, you know,
what are you looking for an a rag? Is you
read through like what they're doing here in Amazon Q
and what they're doing with salesforce? Like like what is
it that you're looking for as you pars through? What's
a lot of words.
Speaker 3 (13:00):
Yeah, So the way you want to think about it,
Microsoft disclose some numbers. When we back into that, it
shows us that Microsoft just on their cloud business is
generating a billion dollars a quarter at this point, which
is a quarterly revenue of four billion dollars. Amazon's not
going to give any close to number like that. They
are nowhere close to that. So I think that's basically
(13:21):
shows that the competition is really tough right now and
they have to launch all these products in order for
enterprises or companies to embrace it so that they can
down the road give that number out. So if they
give a number out, I think it'll be a very
very different ballgame tomorrow, but I doubt that's going to
happen today.
Speaker 2 (13:38):
Put on my I'm you know, in our conversations last
week about meta platforms, we spoke to your colleague Man Deep,
saying a lot about how advertising was, how AI had
meta platforms was being used to really help with advertising,
And I kind of want to frame the same question
to you. It's about e commerce and how what Amazon
(13:58):
is doing when it comes to We talk a lot
about that in the context of AWS, but how does
it help the core business getting people to buy more
stuff and get more stuff delivered at Amazon?
Speaker 4 (14:11):
Yeah, I mean AI. Generative AI especially is crucial for retail.
In fact, we think it's one of the biggest drivers
to the search or the next leg of growth that
you're going to see online. When you think about generative
AI and you think about search, right, we go shop online,
we put something in the search bar, and we get
a million responses. Half of them, more than half of
them are not relevant. So as you increase the relevancy
(14:33):
of the search, you're going to also increase conversion because
you're giving customers what they want, so huge huge ROI
and getting the search right. And then outside of that,
you know, there is there are a lot of tools,
whether it's using genai to create your marketing, to create
product there are so many things that you could do
with genai and on the e commerce product side that
(14:54):
are really beneficial to the customer experience. And in fact,
you know, outfitting yourself for example, using AI tools, using
visual tools to be able to create these scenarios. It's
all about increasing conversion when it comes to using AI
for e commerce.
Speaker 1 (15:09):
All right, guys, I'm still watching shares of Amazon up
about two point six percent this as it we mentioned
earlier reporting a strong cloud unit sales, rising AI demand.
But again that second quarter net sales forecast is a
little bit light than what the street is forecasting. What
could they say analog on the call that would make
you a little bit more nervous because right now investors
(15:29):
seem to be pretty pleased with this report.
Speaker 3 (15:33):
Yeah, I mean in the cloud side, if they go
out and say that the growth for next quarter is
going to be much lower than what it is, and
it's a cause for concern because their competitors have not
said that. So one would imagine that if the current
quarter growth rate was around seventeen percent, they should grow
in that same brain sixteen seventeen percent in the next quarter. Also,
if they go out inside it's only going to be
ten twelve eleven, then I think that's a problem.
Speaker 1 (15:56):
Same question to you put and what could they say
on the call that might make you be a little
bit more head in on this company.
Speaker 4 (16:02):
If they say retail growth or the e commerce business
has slowed to little single digits, Okay, I would be
a little concerned or even turn negative.
Speaker 1 (16:08):
All right, listen, We so appreciate both of you weighing
in on a company that's not a little complicated. I
don't know that I want to say complicated, but yeah,
a lot of moving pieces and so we do. Yeah,
and so great to get both of their perspectives. Put
them Goyle, she's senior analysts for e commerce at a
leisure off price retail on Zoom from India.
Speaker 2 (16:29):
It's two am, so thank you put them.
Speaker 1 (16:32):
Oh my god, we owe you, We owe you. And
Anna Ragrana always so helpful when we have to go
through these reports. Senior technology analyst Bloomberg Intelligence joining us
from our Chicago But are really both of them, We
so so appreciate the insight
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
Shares an Amazon kind of bouncing around right now, but
rallying in the after hours four point eight percent, gaining
as much as six percent earlier. This after our first
quarter earnings per share beat estimates. We did see that
results came in way ahead of estimates, including the key
AWS segment, extending the company's recent streak of beating estimates.
Second quarter sales and operating income guidance did though come
(00:29):
in a touch soft.
Speaker 1 (00:30):
All right, So let's get to it with us as
Bloomberg Intelligence senior Alys Putnamgoyle and Anna Ragrana on Amazon
and their outlook again, the stock up about four point
six percent. Gosh, not sure where to start here because
there's so many moving parts, honourg let me start with
you in terms of we always think about AWS, but
tell us about from your perspective, what you what jumps
(00:51):
out for you for Amazon?
Speaker 3 (00:53):
Yeah, I would say AWS, Madgins. I mean, I just
can't believe how big this number is. Thirty seven point
six percent operating margins compared to last years twenty four percent,
So that's almost you know, fourteen percent increes and that
that is this phenomenal and basically shows the scalability of
this business model. And you know, frankly speaking, we weren't
(01:14):
expecting these kinds of margins for several years out. So
I think this is this should be really good signed
for investors that this is really a good business model,
an rock.
Speaker 2 (01:24):
How do they do this? Given that Microsoft is catching up,
given that Google's alphabet's Google is catching up? How did
Amazon pull this off? How did they pull off these margins?
Speaker 3 (01:37):
I think they did a lot of cost rationalization over
the last few years. They remember all the you know,
layoffs and things that we heard about, So I think
that has to do with it. Now, I mean, to
be very honest, I think this is going to be
a time that these margins will over time go a
little bit down because of new investments in generative AI
and you know, things that they have to do to
(01:57):
expand the capacity of their data centers. So at the
same time, I mean, you've never seen thirty seven point
six percent margins for AWS before, all.
Speaker 1 (02:06):
Right, so forgive me punam, come on in, because yeah,
I mean the retail side of the business is really
super important too, So talk to us about what we
saw on that side.
Speaker 4 (02:15):
Sure, the retail numbers were actually just in line, so
they met expectations and they looked at that and advertising.
I think the story really is on AWS. That's where
the beat came from. But I would say, you know,
the guidance is light of expectations, and that may have
something to do with online because if you recall the
first quarter, it did have an earlier easter. So some
(02:37):
of the numbers that you see on the online side
being strong and inline is thanks to that earlier easter
and the spring sale that they had, which wasn't there
last year. So some of the weakness that we're seeing
in the guidance maybe due to the online business that
we'll find out when they start talking on the call.
Speaker 2 (02:52):
Put what about advertising here? This is something that not
just on the Prime video which is relatively new, but
the business over the last few years has grown massively,
and when it comes to the search function, talk to
us about what you saw with advertising this quarter.
Speaker 4 (03:08):
Advertising was strong, once again relatively inline with expectations to
a little better. So we think that business continues to
grow at a twenty plus percent clip, and we think
that will continue, especially with the layering on of the
Prime video advertising business. What I'd say there is. You know,
when you think about the two big businesses that it
has outside of retail, they're very, very high margin businesses,
(03:28):
both advertising and AWS. So when we see the cash
flow generation that we saw in the quarter, it's really
thanks to these two businesses growing at the rate that
they're growing.
Speaker 1 (03:37):
Anna Rock, I want to bring you back in because
you know, one of the previews that we had on
the Bloomberg today is, you know, Amazon earnings to bring
more scrutiny for AI tethered stocks and just saying how
kind of the bar was high coming off of Alphabet
and Microsoft last week right where they showed, hey, listen,
all this money that we're spending on AI, it's paying
off for us. We're trying to kind of find where
(03:58):
the AI story and what it's doing for Amazon. What
can you tell us there?
Speaker 3 (04:03):
Yeah, and if you look at it, they launched a
brand new product today called Amazon Q. You're going to
see a lot of new enterprise products being launched by
AWS because you know, one of what there are one
ways to look at it is on the consumer chat
GPT kind of stuff. They're not the player over there.
They are more selling AI to corporations or large companies. Now,
that's going to take time to build up, which is
(04:25):
one of the reasons I'm saying that this high margin
of thirty seven percent thirty seven point six percent on
Amazon Web Services is not going to last forever. It's
going to go down slowly over the next few years. Now,
that's not a bad thing because in a scalable model
like this to you know, be able to give some
of that back to gain revenue. I think it's it's
a long term really positive sign for AWS.
Speaker 2 (04:47):
Honor rog one hundred billion dollar annual revenue run rate
for AWS. That number a surprise.
Speaker 3 (04:57):
Oh no, I mean we have, we have, we wrote
a big report and we don't see a reason why
this won't be two hundred billion one day. The question
only is how long it's going to take. That's the
big question, is whether it's going to take five years
to get there or six years, seven years. But the
end markets are so large, you know, we remain confident
that it's going to hit two hundred billion over the
next you know, somewhere between six to seven years.
Speaker 1 (05:19):
Poonam, what are they going to do? Like, what are
the numbers we were just talking about with our TV colleagues.
Operating cash flow increased eighty two percent to ninety nine
point one billion for the trailing twelve months compared with
fifty four point three billion for the trailing twelve months
that ended in March thirty first, twenty twenty three. They
got a lot of money coming in. Like you know,
there was some speculation, do they do a dividend, do
(05:40):
they do buy back? Like what do you want to
be seeing that they do with their cash. Certainly on
the retail side of things.
Speaker 4 (05:46):
I think while ad mesters would like a dividend and
buy back, I think they're going to invest back in
the business. So Tiana Rox points, you know, I think
we are going to see capex right on the AWS side, especially,
and they've said that they've said that in the past
that they do plan to take Capex up there. So
we do see them spending more there. But that cash
full generation is only going to go higher. You know,
these margins that they're generating on the advertising business and
(06:08):
the AWS business, and as those businesses scale even further,
are going straight to the bottom line and offsetting any
losses that they have. If that in the retail business,
you know, you said.
Speaker 1 (06:18):
To Punham that overall guidance for the company, and that
seems to be the thing that was certainly we highlighted
on the Bloomberg In terms of their revenue guide and
second quarter net sales, they see one hundred and forty
four billion tw one hundred and forty nine billion. The
street estimate is above that range at one hundred and
fifty point twenty one. You said, you know, might be
because of the online business. What's the question you want
(06:40):
to be hearing? Are that analysts are asking specifically on
that call.
Speaker 4 (06:45):
I think the first question is how much did in
earlier easter help them in the spring sale? How much
did that contribute to that seven percent increase that they
saw in online sales first party, because if that was
a few percentage points, and that kind of answers the
question going into the second quarter. And then the other
question I'd ask on the retail side is you know,
how are they doing in terms of just gaining share
online against these rising threats from TIMU and She and
(07:09):
I don't know if they'll ever answer that, but clearly
those things are growing very rapidly, and is there something
else that they're doing to offset those competitive threats?
Speaker 2 (07:17):
Honor rog I'm just taking some time to look through
the cloud results here. And one thing that was notable
going into this report is that there was some discussion
about sales growth at AWS slowing to a record low
last year, businesses cutting back on tech spending. They wanted
to bring those computing bills that balloon during the pandemic
under control. Now you have Jasse out in a statement
(07:41):
saying essentially that the combination of companies renewing their infrastructure
modernization efforts and the appeal of aws's AI capabilities is
reaccelerating aws's growth rate. Is that him saying companies are
done cutting back on their cloud spend. Is that him
saying the worst is behind us when it comes to
company tiping their bell.
Speaker 3 (08:02):
Yeah, And frankly speaking, he had to say that because
both Microsoft and Google came up with very good numbers. Now,
when you look at AWS commitments, you know, they gave
out a figure called cloud commitments, which is people signing
long term contracts even in the last you know, I
would say one and a half to two years. Those
numbers have been very strong, twenty percent, thirty percent even higher,
(08:22):
which means people are making those commitments they're not just
using them, They're not using those cloud credits. They're just
pacing themselves into a variable cost model, and then when
economic conditions improve for their clients, they will, you know,
get the consumption up. And that's what we're seeing right now.
Speaker 1 (08:38):
Anareg, what's your number one question for the call?
Speaker 3 (08:42):
The number one question is can you break out your
AI workloads versus the non AI workloads on AWS? Because
Microsoft's already saying so, if Microsoft sales growth has let's say,
you know, thirty percent, seven percentage points of that is
because of AI, I want to know that exact number
for aw US. I don't think they're going to give
it this time, but that that's my number one question.
Speaker 2 (09:05):
Hey, we forgive us, but we got earnings crossing again
right now. Shares AMD down about four point two percent
in the after hours. Second quarter revenue coming in at
five point four to six billion dollars estimates were for
the midpoint there five point seven first quarter just atdps,
did beat estimates. Should note also operating margin coming in
(09:26):
above estimates at twenty one percent versus estimates of twenty
point eight percent. First quarter capex, though coming in way
above estimates one hundred and forty two million dollars. Carrol
estimates were for one hundred and eighteen point four million dollars.
Speaker 1 (09:39):
Amd On now down more than five percent. In the
after market, Amazon, we continue to talk about it. Their
cloud unit posting the strongest sales growth in a year,
a sign that the retailer's most profitable unit is recovering
from a slump as businesses resume spending on technology projects.
And we've seen the shares certainly rally here in the
after market. We're talking with Pudam Goyle and Honor Agrana
(10:00):
of our intelligence Bloomberg Intelligence team put them, is there
anything in here too that you get an idea of
kind of how consumers are doing? Certainly, Amazon is such
a great key metric when it comes to this what
are you seeing in that front?
Speaker 4 (10:14):
I think Amazon continues to take share. So when you
look at the consumer dynamics today in retail, Amazon has
been taking share. Most of the consumer is still cautious,
they're still training down to value, they are spending where
they want to spend, and they're spending more on staples
than they are on discretionary. So I think the numbers
that they've posted today show that they continue to take share, and.
Speaker 1 (10:36):
I just want to point in Amazon shaares now are
only up about one percent here, so they've definitely pared
back some of their earlier moves.
Speaker 2 (10:42):
Put them on a report like this. I see the
way that Amazon is dominating when it comes to cloud,
when it comes to advertising, when it comes to online retail,
They're in healthcare now, They're getting everywhere. And I guess
my question for you is about regulatory risk here. FTC
has a suit filed against the company, and I'm wondering
how investors should think about regulatory risk here. I mean,
(11:04):
this is a close to two trillion dollar company.
Speaker 4 (11:08):
Well, we have analysts that cover it on the regulatory side,
and I think so far the bi opinion is that
we don't see a big risk to the Amazon business
as it stands today, though we also don't see a
breakup happening. We put very low probability on that. You know,
when you think about the different businesses that Amazon competes,
and it is a dominant share in many of them,
(11:31):
but it's also a very small share in many of them,
like the few that you mentioned healthcare. You know, Amazon's
still a very small player in the healthcare business. In
the grocery business where they're trying to make in roads,
they're very small there. They are a large retailer, but
most of their retail business is third party operated more
than sixty percent. So there's arguments to be made on
both sides, but our opinion at BI is that it's
(11:54):
not going to be easy for the FTC to force
a breakup here.
Speaker 2 (11:58):
I see Honor rog just nodding his head from sgo
right now. I'm wondering your thoughts on this an a
rug and if you have anything to add when it
comes to AWS, because certainly they're the dominant play. I mean,
they invented the category, no question.
Speaker 3 (12:09):
Yeah, but they invented the category and Microsoft's been closing
that chair like for a while now, and in AI
Microsoft doing far better. Googled growing much faster, Microsoft going
even faster. So nobody can say that they dominate the
cloud space right now. You know, they have to watch
the heels at any given time you see the number
of product releases from AWS in the amount of you know,
(12:30):
marketing they're putting behind it just to say that they're
not behind Microsoft, So I would not say that they
are monopoly when it comes to cloud. I mean, there's
so many players at this point.
Speaker 1 (12:39):
Well's so funny that you say that I'm reading to
the press release right now and there's like a ton
of stuff on AI. But it's a lot of It's
just a lot of stuff, And I guess, you know,
what are you looking for an a rag? Is you
read through like what they're doing here in Amazon Q
and what they're doing with salesforce? Like like what is
it that you're looking for as you pars through? What's
a lot of words.
Speaker 3 (13:00):
Yeah, So the way you want to think about it,
Microsoft disclose some numbers. When we back into that, it
shows us that Microsoft just on their cloud business is
generating a billion dollars a quarter at this point, which
is a quarterly revenue of four billion dollars. Amazon's not
going to give any close to number like that. They
are nowhere close to that. So I think that's basically
(13:21):
shows that the competition is really tough right now and
they have to launch all these products in order for
enterprises or companies to embrace it so that they can
down the road give that number out. So if they
give a number out, I think it'll be a very
very different ballgame tomorrow, but I doubt that's going to
happen today.
Speaker 2 (13:38):
Put on my I'm you know, in our conversations last
week about meta platforms, we spoke to your colleague Man Deep,
saying a lot about how advertising was, how AI had
meta platforms was being used to really help with advertising,
And I kind of want to frame the same question
to you. It's about e commerce and how what Amazon
(13:58):
is doing when it comes to We talk a lot
about that in the context of AWS, but how does
it help the core business getting people to buy more
stuff and get more stuff delivered at Amazon?
Speaker 4 (14:11):
Yeah, I mean AI. Generative AI especially is crucial for retail.
In fact, we think it's one of the biggest drivers
to the search or the next leg of growth that
you're going to see online. When you think about generative
AI and you think about search, right, we go shop online,
we put something in the search bar, and we get
a million responses. Half of them, more than half of
them are not relevant. So as you increase the relevancy
(14:33):
of the search, you're going to also increase conversion because
you're giving customers what they want, so huge huge ROI
and getting the search right. And then outside of that,
you know, there is there are a lot of tools,
whether it's using genai to create your marketing, to create
product there are so many things that you could do
with genai and on the e commerce product side that
(14:54):
are really beneficial to the customer experience. And in fact,
you know, outfitting yourself for example, using AI tools, using
visual tools to be able to create these scenarios. It's
all about increasing conversion when it comes to using AI
for e commerce.
Speaker 1 (15:09):
All right, guys, I'm still watching shares of Amazon up
about two point six percent this as it we mentioned
earlier reporting a strong cloud unit sales, rising AI demand.
But again that second quarter net sales forecast is a
little bit light than what the street is forecasting. What
could they say analog on the call that would make
you a little bit more nervous because right now investors
(15:29):
seem to be pretty pleased with this report.
Speaker 3 (15:33):
Yeah, I mean in the cloud side, if they go
out and say that the growth for next quarter is
going to be much lower than what it is, and
it's a cause for concern because their competitors have not
said that. So one would imagine that if the current
quarter growth rate was around seventeen percent, they should grow
in that same brain sixteen seventeen percent in the next quarter. Also,
if they go out inside it's only going to be
ten twelve eleven, then I think that's a problem.
Speaker 1 (15:56):
Same question to you put and what could they say
on the call that might make you be a little
bit more head in on this company.
Speaker 4 (16:02):
If they say retail growth or the e commerce business
has slowed to little single digits, Okay, I would be
a little concerned or even turn negative.
Speaker 1 (16:08):
All right, listen, We so appreciate both of you weighing
in on a company that's not a little complicated. I
don't know that I want to say complicated, but yeah,
a lot of moving pieces and so we do. Yeah,
and so great to get both of their perspectives. Put
them Goyle, she's senior analysts for e commerce at a
leisure off price retail on Zoom from India.
Speaker 2 (16:29):
It's two am, so thank you put them.
Speaker 1 (16:32):
Oh my god, we owe you, We owe you. And
Anna Ragrana always so helpful when we have to go
through these reports. Senior technology analyst Bloomberg Intelligence joining us
from our Chicago But are really both of them, We
so so appreciate the insight
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