Amazon erases early gains after AWS growth commentary; analysts flag NT uncertainty

Investing.com -- Amazon (NASDAQ:AMZN) reported Thursday first-quarter results that topped analysts' estimates, underpinned by cloud and advertising growth.

Amazon shares had gained 8% in after-hours trade following the report. However, the stock then erased all gains to trade nearly 2% lower in premarket Friday after the e-commerce giant's management issued cautious comments on the earnings call about the cloud growth.

“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter,” CFO Brian Olsavsky said. “We are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1.”

Amazon reported Q1 EPS of $0.31 on revenue of $127.4 billion, beating estimates of $0.21 on revenue of $124.55B. Net sales in North America rose 11% to $76.88B year-on-year in Q1.

Amazon Web Services, its fast-growing cloud revenue segment, grew 16%, to $21.35B. Advertising revenue, meanwhile, rose to $9.5B from $7.9B in the same period a year earlier.

For the second quarter, the company expects Q2 revenue of $127.0B to $133B and operating income of $2.0B to $5.5B. That was in line with market estimates for revenue of $129.9B.

Wolfe Research analysts raised the price target on Amazon stock to $140 per share as he believes long-term secular themes remain strong.

"There was a lot to like on AMZN’s 1Q print. However, we think the lack of visibility on AWS growth could weigh on shares NT. Despite these current uncertainties, we remain confident on path for AWS revenue growth reacceleration. Furthermore, retail margins should see sustained improvements throughout 2023," they said in a note to clients.

William Blair analysts said the investors didn't get the bottom they were hoping for.

"We see risk that Amazon shares could trade sideways until the second-quarter print when it will likely give intra-quarter AWS growth trends, as investors try to feel out an inflection point," the analysts wrote.

(Additional reporting by Senad Karaahmetovic)