Amazon's Q1 profit margin hits a new high, but profit guidance is disappointing, warns of tariff impact, and drops 5% in after-hours trading | Earnings Report Insights

In the first quarter of this year, the tariffs imposed by the Trump administration had not yet impacted the performance of e-commerce giant Amazon. However, one of the company's major growth engines—cloud business AWS—seemed to be lagging, with the degree of sales slowdown exceeding Wall Street's expectations.

Amazon's overall profit in the first quarter was stable, but the guidance for the second quarter indicated that operating profit could fall significantly short of expectations. Moreover, Wall Street noticed that Amazon mentioned for the first time in its guidance that tariffs and trade could have a significant impact on performance, and this guidance did not take into account the potential tariff impacts that may be implemented after April.

Commentators believe that since most of the products on the Amazon platform come from China, the company has clearly prepared for a slowdown in business over the next few months due to the impact of tariffs on retail performance, even though it did not mention "tariffs" when releasing the first quarter guidance in early February. Investors may be disappointed with this profit guidance, which could raise concerns about Amazon's ability to absorb tariff costs.

The slowdown in AWS sales and the weak profit guidance prompted investors to take immediate selling action. After the earnings report was released, Amazon's stock, which had risen over 3%, quickly turned to decline in after-hours trading, dropping as much as 5% before quickly narrowing some of the losses.

On Thursday, May 1st, Eastern Time, Amazon announced its financial data for the first quarter of 2025, ending March 31, and provided performance guidance for the second quarter.

1) Key Financial Data

Revenue: Net sales for the first quarter were $155.67 billion, a year-on-year increase of 8.6%, with analysts expecting $155.16 billion, and a growth of about 10% in the fourth quarter.

EPS: Diluted earnings per share (EPS) for the first quarter were $1.59, a year-on-year increase of about 62.2%, with analysts expecting $1.36, and an 86% growth in the fourth quarter.

Capital Expenditure: Capital expenditure for the first quarter was $25.02 billion, a year-on-year increase of about 67.6%, with a 90.8% growth in the fourth quarter.

Operating Profit: Operating profit for the first quarter was $18.405 billion, a year-on-year increase of 20.2%, with analysts expecting $17.51 billion, and a 61% growth in the fourth quarter; the operating profit margin for the first quarter was 11.8%, with analysts expecting 11.2%, compared to 11.3% in the fourth quarter.

2) Segment Business Data

Online Stores: Net sales for online stores in the first quarter were $57.407 billion, a year-on-year increase of 5%, with a 7.1% growth in the fourth quarter.

Physical Stores: Net sales for physical stores in the first quarter were $5.533 billion, a year-on-year increase of about 6.4%, with analysts expecting $5.41 billion, and an 8.3% growth in the fourth quarter.

Subscription Services: Including Prime memberships, e-books, and other non-AWS subscriptions, net sales for subscription services in the first quarter were $11.715 billion, a year-on-year increase of about 9.3%, with a 9.7% growth in the fourth quarter.

AWS: Net sales for AWS in the first quarter were $29.267 billion, a year-on-year increase of about 16.9%, with analysts expecting $29.36 billion, and a 19% growth in the fourth quarter 3) Segmented Market Data

North America: In the first quarter, net revenue in the North American market was $92.89 billion, a year-on-year increase of approximately 7.6%. Analysts expected $92.63 billion, with a growth of 9.5% in the fourth quarter. The operating profit margin for this market in the first quarter was 6.3%, while analysts expected 6.65%, and it was 5.8% in the fourth quarter.

International: In the first quarter, net revenue in international markets outside North America was $33.51 billion, a year-on-year increase of approximately 4.9%, with a growth of 7.9% in the fourth quarter. The operating profit margin for this market in the first quarter was 3%, while analysts expected 2.96%, and it was 2.8% in the fourth quarter.

4) Performance Guidance

Revenue: Expected net sales for the second quarter are between $159 billion and $164 billion, with analysts expecting $161.42 billion.

Operating Profit: Expected operating profit for the second quarter is between $13 billion and $17.5 billion, with analysts expecting $17.82 billion.

Revenue Growth Slows to Two-Year Low, Still Stronger than Expected; Operating Profit Margin Hits Record High for Four Consecutive Quarters

The financial report shows that Amazon's revenue growth in the first quarter was the slowest since the fourth quarter of 2020, and the EPS growth also slowed compared to the previous quarter, but both were still stronger than analysts' expectations.

The year-on-year growth rate of net sales in the first quarter slowed from 10% in the fourth quarter to a high single-digit 8.6%, while analysts expected a growth of about 8.3%. The EPS growth in the first quarter slowed from 86% in the fourth quarter to about 62%, while analysts expected a growth of 38.8%. Amazon's reported EPS was 16.9% higher than analysts' expectations.

Both revenue and operating profit in the first quarter exceeded the company's previously announced guidance range for the entire first quarter. The operating profit in the first quarter was also 5% higher than analysts' expectations. The operating profit margin for the quarter did not decline slightly as analysts had anticipated; instead, it further increased, setting a record high for four consecutive quarters.

AWS Sales Slow, but Operating Profit Margin Increases

In the first quarter, AWS revenue again fell short of expectations, experiencing its first quarter-on-quarter decline in two years. The year-on-year growth of AWS net sales in the first quarter slowed from 19% in the fourth quarter to just below 17%, while analysts expected a growth of about 17.3%. Excluding the impact of exchange rates, AWS's net sales in the first quarter grew by 17% year-on-year, matching the growth rate of the fourth quarter, while analysts expected a growth of 17.2%.

However, like the company's overall profit, AWS's operating profit was also strong compared to analysts' expectations. The operating profit margin for AWS in the first quarter was 39.45%, higher than 36.83% in the fourth quarter, and it did not decline to the expected 35.25% as analysts had predicted

Revenue guidance roughly meets expectations, operating profit guidance is 27% lower than expected in the worst-case scenario

In terms of performance guidance, Amazon stated that based on the revenue guidance range for the second quarter, net sales are expected to grow approximately 7% to 11% year-over-year. Analysts' revenue expectations for the second quarter are generally in the mid-range of Amazon's guidance.

Calculating the average of the range, net sales are expected to grow approximately 9% year-over-year, which suggests that after the first quarter's revenue recorded the lowest growth in two years, Amazon's revenue in the second quarter may improve slightly, with growth accelerating.

Amazon noted that the revenue guidance takes into account an expected negative impact of about 10 basis points from exchange rate factors on growth.

However, the operating profit guidance provided by Amazon is disappointing. The entire guidance range is below analysts' expectations, with the high end of the guidance range approximately 1.8% lower than analysts' expectations, and the low end of the range even 27% lower than analysts' expectations.

This means that in Amazon's worst-case scenario, the operating profit for the second quarter is expected to be 27% lower than analysts' expected levels.

Amazon's guidance is based on expectations as of May 1, with new warnings that tariffs and trade policies may have a significant impact

When announcing the guidance, Amazon hinted that the guidance provided does not account for any impacts from tariffs implemented after April. In other words, if the tariffs imposed by the Trump administration starting in May lead to reduced consumer spending, it could negatively impact Amazon's performance, making this guidance potentially optimistic.

Amazon stated that the sales and profit guidance provided

"reflects Amazon's expectations as of May 1, 2025, and carries significant uncertainty. Our results are inherently unpredictable and may be significantly affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, tariffs and trade policies, customer demand and spending (including the impact of recession concerns), inflation, interest rates, regional labor market constraints, global events, the growth rates of the internet, online commerce, cloud services, and emerging technologies, as well as various factors detailed below."

Wall Street Insights compared the guidance announced by Amazon when releasing its fourth-quarter financial report last year and found that compared to the first-quarter guidance at that time, the only newly mentioned factor that may have a significant impact this time is "tariffs and trade policies."