Nick Jones, Equity Research Analyst at JMP Securities, joined the live show to discuss Amazon’s rise in first-quarter earnings, the incorporation of AI, and the company’s net sales growth amid a potential recession. Discuss outlook.
video transcript
– We are still focused on Amazon today. Amazon’s stock surged after the bell, up 7% on first-quarter net sales and a bright second-quarter outlook. Nick Jones, Equity Research Analyst at JMP Securities, will participate. Nick, what’s the biggest takeaway from Amazon’s report?
Nick Jones: AWS performance and margin performance really encouraged me. Indeed, that profit margin appeared in his 1P-3P segment. What I think some investors are looking at is whether e-commerce can be profitable again, or at least start to pick up the pace towards profitability. Operating profit is better than expected. Also, the North America segment, the International segment, and AWS performed well. Overall, we had a very solid first quarter.
Sheena Smith: Nick, what do you think of the cost-cutting measures? Clearly, looking at these numbers, Amazon appears to be keeping costs under control. It seems to be more under control than the Streets probably thought last quarter. What do you think the landscape will look like in the future?
Nick Jones: Yes, I think you are right. So that’s what we’re going to focus squarely on the call, his AWS trend in 2Q and his 2Q margin within AWS any we can get from management regarding his profile kind of comment. It’s a bit of a catch 22 because I hear management talking about cutting back on AWS client spending in order to maintain long-term relationships. So there’s a bit of ups and downs here in terms of what Wall Street wants to see: making sure it’s doing the right thing for its customers while still delivering profits.
– Nick, what are your thoughts on Amazon’s forecast for the next quarter?
Nick Jones: See, so far, it looks good. I have to unpack it on the phone. Again, I think it will be a commentary on her April trends for AWS. Street, I think he’s really looking for 9% to 10% growth year-over-year in the second quarter. We’ll see if they give us any comments on the calls around it. The bottom line also straddles consensus. It may be a little lighter, but I think it’s better than fear. Because of this, we are seeing inventory react after a few hours.
Sheena Smith: What about Nick, AI, artificial intelligence? That was indeed Microsoft’s theme here when we heard from them earlier this week.Google, Alphabet also mentioned artificial intelligence (AI) on their earnings calls. We caught up with Jassy a little bit about Amazon’s plans to power AI. Do you think it’s reshaping their business? Or how do you see Amazon incorporating AI in the future?
Nick Jones: Yeah, I think this has been part of their business for a very long time. It has the advantage that ChatGPT is popular now. So consumers really need to put this into practice and understand the forces behind it. I was. They cite machine learning as one of the reasons the advertising business continues to outperform as it continues to innovate and serve relevant ads to consumers. So I think this has been part of their playbook for a long time.
– And Nick, I have to ask you: What headwinds do you think Amazon will have to deal with?
Nick Jones: Will we really just have a recession in the second half? I think that’s the big question. Will consumers stay there and keep spending money, or not? That’s really what everyone is focused on. And I hear there are some conflicting data points. Consumer demand may be weakening, according to UPS. Visa comes out and says stronger demand. Amazon does well on 1P and 3P. So so far consumers seem to be hanging in there.
Sheena Smith: Nick, FX headwinds, dollar-dollar strength, how big were the headwind challenges for Amazon? And what do you think the quarter will look like?
Nick Jones: Well, it’s hard to say now. I mean, we get it. I mean, I’ve heard other companies like eBay talk about a weaker dollar. As you progress through the year, the impact is likely to diminish. But again, this is all kinds of macrodynamics. We need to pay attention to what the Federal Reserve does, how consumers react, and what that means for the U.S. dollar and Amazon.
Sheena Smith: Yeah sure here on the income statement they posted a $2.4 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter. Nick Jones, always to get your immediate reaction Great. Thank you for joining us.
