Amazon's Profits Grow has surpassed Wall Street's expectations with its impressive sales growth and profits, driven by efficient delivery to customers and a rebound in its cloud-computing division. For the second quarter, Amazon's revenue surged by 11% to reach $134.4 billion, outperforming the $131.5 billion estimated by analysts. Ultimately, Amazon reported a quarterly profit of $6.7 billion, nearly double the amount anticipated by analysts.

Following this news, Amazon's shares surged by 9%, adding over $120 billion to its market value during after-hours trading.

  • The company's cloud-computing division, Amazon Web Services (AWS), has played a pivotal role in its success. Although AWS experienced slower sales growth due to cost concerns among businesses, it bounced back as larger enterprises began adopting cloud services again.
  • CEO Andy Jassy stated that AWS's growth has stabilized, and the division's cloud sales for the second quarter exceeded expectations, reaching $22.1 billion, a 12% increase.
  • Jassy mentioned that AWS's investment in AI technology represents a significant portion of Amazon's projected capital expenditures for 2023, expected to surpass $50 billion.
  • Despite this progress, the full potential of Amazon's cloud division benefiting from businesses' AI demands remains untapped. Analysts expect results to materialize in the third quarter of 2023.
  • In the retail sector, Amazon has optimized its fulfillment network and strategically opened warehouses near major cities, resulting in quicker and cost-effective same-day shipping. This approach has led to an increase in shopping frequency among its Prime loyalty customers.
  • CFO Olsavsky reported that inflation-related headwinds were easing, and Amazon anticipates a significant boost from its Prime Day event.
  • Amazon is optimistic about consumer sales for the latter half of 2023, both within and outside the company. For the current quarter, Amazon forecasts net sales in the range of $138 billion to $143 billion, surpassing the $138.25 billion revenue predicted by analysts.

Looking ahead, Amazon is determined to transform its $35 billion yearly gross business-to-business e-commerce sales into an impressive $100 billion, as revealed by CEO Jassy during the analyst briefing. To achieve this goal, Amazon has been implementing cost-cutting measures, including layoffs that affected 27,000 employees, roughly 9% of its workforce.

Apple's Sales Decline Lightly

Apple reported its fiscal third-quarter results, surpassing Wall Street expectations for both earnings and sales. The standout performance was driven by robust services sales, which experienced an 8.2% growth on an annual basis (versus 5.5% in the previous quarter). Despite this, the company faced declining revenues in its iPhone, Mac, and iPad product lines compared to the previous year.

  • Following the earnings release, Apple's shares decreased more than 2% during extended trading.
  • The company refrained from providing official guidance for the quarter, a practice that has been in place since 2020 due to prevailing uncertainties.
  • Further downward pressure on the stock came after CFO Luca Maestri mentioned the company's anticipation of revenue decline in the September quarter.

Services Save The Day

Apple's Services division proved to be the highlight of the report. This division is particularly important for investors as it showcases how Apple is monetizing its vast base of 2 billion devices, offering them subscriptions, streaming TV, warranties, advertising, payment services, and other products within this category.

  • Apple's CEO, Tim Cook, noted that various components within the Services division were experiencing growth.
  • He stated, "We set revenue records in many categories in Services this quarter, from video, to AppleCare, to cloud, to payment services, and we set June quarter records for advertising, the App Store, and Apple Music."
  • Cook further emphasized that App Store growth had shown acceleration.

Cook revealed that Apple has now amassed over 1 billion paid subscriptions. This figure encompasses people subscribing to services like Apple Music or Apple TV, as well as anyone subscribing to a service through the company's App Store. Cook noted that this number had increased by 150 million compared to the previous year, nearly doubling from what it was just three years ago.

Benchmark's Take

Inflation is converging towards its historical mean, while advancements in technology-driven solutions are boosting productivity.

  • This may help technology stocks fare even better in the future as investors look for growth again in an environment of potentially fallings yields.
  • Some experts, including prominent investor Yardeni, even project an era of extensive innovation and productivity gains fueled by considerable investments in critical tech infrastructure.

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