Amazon delivered the brightest earnings report in FAAMG, but it had nothing to do with the big models.On August 4, Amazon released its Q2 2023 earnings report. Amazon’s revenue for the period was $134.4 billion, up nearly 11%, reversing the single-digit growth that has persisted over the past year, and net income turned around to $6.7 billion year-over-year. After the release of the earnings report, Amazon jumped 8.27%, increasing its market capitalization by nearly $120 billion.
In terms of specific businesses, the North American business contributed 61% of revenue with $82.5 billion; followed by the AWS business, which contributed 22% of revenue with $29.7 billion; and lastly, the international business, which contributed 17% of revenue with $22.1 billion. Within individual categories, advertising was the fastest-growing business type, with revenue of $10.68 billion, up 22 percent year-over-year. The growth rate was faster than Google’s and Facebook’s 3.2% and 12% in the same quarter.
From the feedback of this report, the new head of Andy Jassy from last fall implemented a series of layoffs, reduce spending, North America retail adjustment and other initiatives have achieved initial results. But it’s worth noting that although AWS cloud sales grew 12 percent, the growth rate has declined for six consecutive quarters. Last week’s Microsoft earnings report cloud business also showed a slowdown in growth. This suggests that the current trend of tech companies reducing cloud spending remains unchanged. And under the new paradigm revolution brought about by the big model, the giants are also stepping up their layout for a new round of competition in the future. Amazon is no exception, and the CEO is now directly leading a new team to develop key AI projects, including more capable base models. There is also news that Amazon is also opening a new ChatGPT-like project to make the previous voice assistant Alexa smarter.
1. Amazon’s key to recovery: cost reduction and efficiency + e-commerce change of tactics
Amazon’s brightest spot this quarter is the sharp increase in profits, which is directly related to a series of cost-cutting and efficiency measures taken after the new CEO took office. 2023 second quarter, Amazon reversed the loss situation of the past few quarters. Not only did net profit turn around, operating profit also increased from $3.3 billion in the same period last year to $7.68 billion, more than double.
From the end of last year to the beginning of this year’s Silicon Valley layoffs, Amazon laid off a total of 27,000 employees, making it the tech giant with the most layoffs. The layoffs still continue, as hundreds of Amazon Fresh employees across the U.S. were told via conference call that the company is still laying off employees, while current employees say offline stores are often short-staffed. This is due to Amazon’s layoffs as it shrinks the business and halts store expansion.
Amazon Fresh is Amazon’s new business starting in 2020, similar to ‘Box Fresh’, which offers delivery of produce, meat, seafood, dairy and groceries by opening offline brick-and-mortar stores. However, offline store expansion was halted earlier this year due to profitability pressures. for his part, CEO Jassi made it clear that the company would not open Fresh stores until it reevaluated its grocery model.
As it stops expanding its physical stores, Amazon is also reducing the cost of serving its stores. The way to do this is by decentralizing its distribution and transportation network. Amazon executives said at the earnings conference that its goal is to transform the network of stores for distribution and shipping from one national network to eight separate regions, each building inventory to serve its region. “It makes it faster and cheaper to get products to customers.” When shipping distances are shorter and transportation costs are more fixed, costs can be effectively controlled. According to the data disclosed in the earnings call, compared with the centralized network, since the establishment of the regional network, the number of packages offered has decreased by 20%, the mileage to offer packages has decreased by 19%, 1,000 more package sites have been offered within the region, and the share of intra-regional delivery has reached 76%.
Beyond basic retail, Amazon is also expanding revenue from other service types. Products from independent merchants accounted for 60 percent of sales in the third quarter, the highest figure ever, driving revenue from seller services; in addition, the Amazon Business offering, which facilitates purchases for business customers, governments and organizations, reached $35 billion in annual sales, has amassed 6 million customers and is officially said to be one of the fastest-growing offerings, with the business targeting more than The goal for the business is more than $100 billion.
2. Cloud Business: Struggling to Maintain Growth, Laying Out the Future with AI
For AWS cloud business growth rate declined 12% growth rate, the financial report on this data gave its own explanation. In the 80 billion annual revenue scale of the business, to achieve double-digit growth, behind the two realities, first of all, the overall technology companies in the optimization of expenditure, saving cloud computing expenditure, under this premise, Amazon through new customer acquisition and the development of new business, to achieve growth. In April, for big models, Amazon launched a new service platform, Amazon Bedrock, and went live with the Amazon Titan big language model, and an AI coding assistant, Amazon CodeWhisperer.
With Amazon Bedrock, enterprises can directly call base models from startups such as AI21 Labs, Anthropic, and Stability AI, as well as the Titan family of Amazon models via APIs, and combine them with private data to build personalized use cases, with the tool stack required for the process fully hosted on AWS. Labs, Anthropic, and Stability AI are all Amazon funded startups that also use Amazon’s cloud services to train their base models.
However, when it comes to the cloud business outlook for the next quarter and how much monetization AI will bring to this business, the attitude displayed at the earnings conference was one of uncertainty. “It’s still very early, and I expect that number to be large, in the future.” This is consistent with Microsoft’s attitude revealed on the earnings call: the business growth that AI brings to the cloud will be gradual. It also reflects the reality of large-scale adoption of foundational use cases by enterprise customers. On the practical side of the industry, mature use cases have yet to happen at scale, and are still in the exploratory phase, both in terms of how they are embedded in production processes and in terms of enterprise-level deployments.
Amazon itself, on the other hand, has not slowed down its investment in new technologies. In recent news, in late June, Alexa Chief Scientist and Senior Vice President Rohit Prasad moved to a new position to lead a team to train ubiquitous big language models, reporting directly to CEO Andy Jassy. the CEO wrote in an internal letter that “this time, we will focus on our advantageous resources to build the most ambitious big language models”. In addition to building more capable base models, Amazon has invested $100 million in a generative AI innovation center, assembling a team of experts for base models focused on helping customers use generative AI products. And Alexa, the previous generation of voice assistant, will be the new strategy for the era of big models. After giving Alexa personality and intelligence with modeling capabilities, it can undoubtedly bring more possibilities to Amazon.
Looking ahead to the next quarter, Amazon expects third-quarter revenue to be in the range of $138 billion to $143 billion, with a growth rate of between 9% and 13%. In the face of uncertainty and certainty of trends, for Amazon, steadiness and endurance are most needed.