Amazon Q1 Earnings Soar While Q2 Outlook Sparks Selloff

Amazon $AMZN ( ▼ 1.58% ) delivered strong first-quarter results that exceeded Wall Street expectations on Thursday, but the e-commerce giant's cautious outlook for the current quarter sent its stock sliding in after-hours trading.

The Seattle-based company reported impressive growth across its business segments for the quarter ending March 31, 2025, continuing its momentum from previous quarters.

However, concerns about foreign exchange impacts and potential tariff effects have tempered expectations for the months ahead.

Financial Performance Highlights

Amazon reported a net income of $17.1 billion, or $1.59 per share, for Q1 2025, significantly beating analyst expectations of $1.36-$1.37 per share^5,^9,^16.

This represents a 62% jump in earnings compared to the same period last year when the company reported $0.98 per share^12,^17.

Revenue rose 9% year-over-year to $155.7 billion, also surpassing Wall Street's forecast of around $155 billion^1,^6,^9.

Operating income increased 20% to $18.4 billion compared to the first quarter of 2024^15, demonstrating Amazon's ability to improve profitability while continuing to invest in growth initiatives.

Q1 2025 BY THE NUMBERS:
- EPS: $1.59 (vs $0.98 last year)
- Revenue: $155.7 billion (9% YoY growth)
- Operating income: $18.4 billion (20% YoY growth)
- Net income: $17.1 billion (64% YoY growth)

Segment Performance

Amazon's business segments showed varied performance during the quarter.

The North America segment, which represents 60% of total revenue, delivered $92.9 billion in net sales, an 8% increase year-over-year.

The International segment showed more modest growth with net sales increasing 5% year-over-year to $33.5 billion (8% when adjusted for foreign exchange impacts)^6,^15.

Amazon Web Services (AWS), the company's cloud computing division, continued its strong performance with a 17% year-over-year growth to $29.3 billion.

AWS operating income jumped to $11.5 billion, up from $9.4 billion a year earlier, indicating expanding margins in this crucial segment^3,^6,^10.

The company's advertising business was a particular bright spot, with revenue growing 19% to $13.92 billion, exceeding analyst expectations of $13.74 billion^6,^13.

Why the Stock Dropped

Despite the strong Q1 results, Amazon's shares fell approximately 2.4% in after-hours trading.

The primary reason appears to be the company's cautious guidance for the second quarter of 2025.

Amazon projected Q2 operating income in the range of $13 billion to $17.5 billion, which falls short of analyst expectations of approximately $17.82 billion^3,^5,^7.

The company's revenue guidance of $159 billion to $164 billion was roughly in line with Wall Street's expectations at the midpoint^2,^3,^5.

A significant factor in the conservative outlook is the expected impact of foreign exchange rates, which Amazon noted could negatively affect Q2 revenue by approximately $10 billion^3,^16.

STOCK REACTION:
- After-hours decline: ~2.4%
- YTD performance: Down ~13.6%
- Key concern: Q2 operating income guidance below expectations
- FX impact: Projected $10B headwind in Q2

Strategic Investments and Future Focus

Amazon CEO Andy Jassy highlighted the company's continued innovation and customer experience improvements in his statement, pointing to several key initiatives^1,^16:

• Alexa+ - The next generation of Amazon's digital assistant with enhanced capabilities

• Prime delivery speed improvements

• Trainium2 chips and Bedrock model expansion for AWS customers

• Project Kuiper satellites launching into low Earth orbit to provide broadband access to rural areas

These initiatives reflect Amazon's ongoing investment in infrastructure and AI capabilities, which appears to be affecting short-term free cash flow.

The company reported a 48% year-over-year decline in trailing twelve-month free cash flow to $25.9 billion, primarily driven by substantial increases in capital expenditures related to AWS infrastructure and AI capabilities^15.

Tariff Concerns Loom Large

The earnings report comes amid rising tensions between Amazon and the Trump administration regarding potential tariff impacts. Recent reports suggested Amazon was planning to incorporate tariff impacts into product pricing, which drew criticism from the White House.

But Amazon later denied it.

Investors are particularly concerned about how President Trump's tariffs on imports from China might affect Amazon's massive e-commerce business.

With approximately 30-40% of products potentially sourced from China, according to some analyst estimates, Amazon faces several options for addressing the tariff challenge^8:

1. Pressuring suppliers to absorb additional costs

2. Canceling orders

3. Re-routing supply chains

4. Passing costs on to consumers

AWS Performance: A Mixed Picture

AWS, Amazon's cloud computing division and profit engine, showed continued strong growth but fell slightly short of some analyst expectations.

Revenue increased 17% year-over-year to $29.3 billion, slightly below the analyst consensus of $29.42 billion^10.

This marks the third consecutive quarter where AWS revenue fell short of expectations.

However, operating income for the segment reached $11.55 billion, exceeding the analyst consensus of $10.52 billion.

The segment's operating margin stood at 39.5%, its highest level in years, demonstrating improving profitability even as growth moderates slightly^10.

The performance comes as competition in the cloud infrastructure market remains intense, with Microsoft $MSFT ( ▲ 1.28% ) reporting stronger-than-expected growth for its Azure cloud services just a day earlier.

The Road Ahead

The company's investments in AI and infrastructure position it well for long-term growth, but near-term headwinds from tariffs, foreign exchange impacts, and economic uncertainty may create volatility.

Deutsche Bank analysts have expressed caution about Amazon's full-year 2025 outlook, citing potential revenue slowdown in the second half of the year, weak ad performance in Q1, and tariff implications for costs and advertising revenue^8.

However, Bank of America remains optimistic, noting Amazon's ability to gain market share in e-commerce, improve retail margins through headcount reductions, and benefit from cloud AI demand^8.

ANALYST PERSPECTIVES:
Deutsche Bank: Cautious on 2H 2025, cites tariff concerns
Bank of America: Optimistic on market share gains, retail margin improvement
JPMorgan: Bullish on AI positioning and AWS growth pickup in 2H
CFRA: Sees tariffs as potential market share opportunity

Key Metrics to Watch

As Amazon navigates the remainder of 2025, investors will be closely monitoring several metrics:

1. AWS growth rate - Will the cloud division reaccelerate in the second half of the year?

2. Retail margins - Can Amazon continue to improve profitability in its e-commerce business?

3. Ad revenue growth - Will the advertising segment maintain its strong performance?

4. Tariff impacts - How will potential new tariffs affect pricing and consumer demand?

5. Capital expenditures - Will investments in AI and infrastructure begin to translate into improved free cash flow?

The company's Q2 earnings report, expected in late July, will provide crucial insights into how these factors are affecting Amazon's business.

Despite the stock's recent decline, Amazon's strong Q1 performance demonstrates the company's fundamental strength across its diverse business segments.

The cautious Q2 guidance reflects prudent management in the face of macroeconomic uncertainties rather than underlying business weakness.

For investors, the current pullback may represent an opportunity to reassess their position in a company that continues to demonstrate impressive growth and innovation across multiple business lines.