Amazon sees cloud decline in April, shares erase gains

April 27 (Reuters) – Amazon.com Inc ( AMZN.O ) signaled on Thursday that long-running high cloud growth would slow further as business customers braced for turbulence and cut spending, overshadowing the company’s quarterly sales and profit that topped expectations.

In extended trading, Amazon̵[ads1]7;s shares initially surged about $125 billion in value on its positive view of consumer sentiment and the company’s standing among cloud competitors, only to see all of the gains disappear within minutes.

The share price drop followed comments from CFO Brian Olsavsky, who told analysts that cloud customers continued to try to trim their bills starting in the second quarter and that Amazon was helping them build long-term relationships.

That meant earnings growth was about 5 percentage points lower in April than in the first quarter, he said, citing a period that saw a sequential decline.

The stock is now down 2%.

Amazon’s surprising rise and fall is indicative of a precarious moment for the company. To address what he has called an uncertain economy, CEO Andy Jassy has aimed to cut spending across Amazon’s vast array of divisions. At the same time, Amazon faces a looming threat from its cloud rivals Microsoft ( MSFT.O ) and Google ( GOOGL.O ), which are rolling out high-profile artificial intelligence tools.

The cost cuts have gone deep. Amazon has aimed to eliminate 27,000 corporate roles since November; and the number of employees has fallen 10% to 1.47 million full-time and part-time employees, including in warehouses, from the quarter just ended.

The company is also ending entire services, among them the Halo health trackers. It has reorganized its national fulfillment operation so it can find goods closer to customers and deliver them faster and cheaper.

Those moves contributed to Amazon’s profit of $3.17 billion in the period ended March 31, compared with a loss of $3.84 billion a year earlier.

But this did little to attract investors. David Klink, an analyst at Huntington National Bank, said the company’s rapid decline was “tremendous.”

“You don’t see (that) at either Microsoft or Google,” said Klink, whose bank owned $129 million in Amazon stock as of Thursday.

CONSUMER TRUST?

Amazon has been looking for new revenue all the time. Olsavsky told reporters that the economy has brightened internationally.

“It’s good to see inflation going down there,” he said. “It’s good to see that consumer confidence is increasing.”

In North America, Amazon’s biggest market, demand held up, he said. But “you’re seeing signs that customers are looking for value” and “probably delaying some discretionary purchases.”

Ultimately, the online retailer reported better-than-expected sales of $127.36 billion in the first three months of the year, and it forecast revenue between $127 billion and $133 billion in the second quarter.

Aside from its financially conscious customers, Amazon aimed to project confidence in its cloud for the long term.

Jassy said the growing use of generative AI, which can create text, images and other content from past data, represented a huge opportunity for Amazon’s cloud. One reason is its proprietary chips that he said can power much of what businesses want to do with AI; another is Amazon’s own new AI tools.

Likewise, Olsavsky told reporters, Amazon had seen no change in the competitive balance among cloud providers. His comments followed a financial report from Microsoft this week that beat analysts’ expectations as rival Amazon drew business through AI. Sales growth for AWS slowed to 15.8% in the first quarter.

Dennis Dick, a stock trader and market structure analyst at Triple D Trading, said shareholders are likely to sell.

“AWS growth slowdown is a signal for investors to take profits,” he said.

Reporting by Akash Sriram in Bengaluru and Jeffrey Dustin in Palo Alto, California; Editing by Arun Koyyur

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