Amazon.com, Inc. (NASDAQ: AMZN)

Amazon delivered strong financial results for Q1 2025, with net sales increasing by 9% to $155.7 billion, compared to $143.3 billion in Q1 2024. Excluding foreign exchange impacts of $1.4 billion, net sales increased 10% year-over-year. This growth came despite challenges related to global economic uncertainty and comparing against a leap year in 2024.

The company’s operating income showed impressive growth, increasing 20% to $18.4 billion compared to $15.3 billion in the same period last year. This improvement reflects Amazon’s ongoing efforts to optimize operational efficiency, particularly in its fulfillment network and cost structure. Operating margin expanded to 11.8% of net sales, up from 10.7% in Q1 2024.

Net income saw a substantial increase, reaching $17.13 billion, up 64% from $10.43 billion in Q1 2024. This translates to diluted earnings per share of $1.59 compared to $0.98 in the prior year period. It’s worth noting that Q1 2025 net income includes a pre-tax gain of $3.3 billion from the conversion of a portion of Amazon’s convertible notes investment in Anthropic to non-voting preferred stock.

While the company continues to generate substantial cash flow, with trailing twelve-month operating cash flow increasing 15% to $113.9 billion, free cash flow declined significantly to $25.9 billion from $50.1 billion in the prior year. This decline is primarily due to a substantial increase in capital expenditures, which nearly doubled to $88.0 billion (TTM) from $49.0 billion a year earlier. These investments are largely directed toward building infrastructure to support AWS growth, particularly in AI capabilities, and enhancing fulfillment and logistics networks.

North America segment delivered $92.9 billion in net sales, an 8% increase compared to Q1 2024. Operating income for this segment was $5.8 billion, representing a 17% increase year-over-year, with an operating margin of 6.3%. Management noted that one-time charges related to historical customer returns and costs to receive inventory pulled forward ahead of anticipated tariffs impacted the segment’s margin; without these charges, North America operating margin would have been approximately 7.2%.

International segment generated $33.5 billion in net sales, a 5% increase as reported or 8% excluding foreign exchange impacts. Operating income for this segment reached $1.0 billion, a significant improvement from the prior year, resulting in a 3.0% operating margin. Similar to North America, one-time charges impacted International’s profitability, and without these charges, the operating margin would have been approximately 3.7%.

Amazon Web Services (AWS) continued its strong performance with $29.3 billion in revenue, a 17% increase year-over-year. AWS operating income grew to $11.5 billion, representing a 23% increase compared to Q1 2024. The operating margin for AWS expanded to 39.5%, the highest it has been since at least 2014, demonstrating the segment’s profitability and scale benefits. Despite this being the third consecutive quarter of revenue misses for AWS, the operating income exceeded analyst expectations of $10.5 billion.

Worldwide paid unit growth was 8% year-over-year, with third-party seller unit mix holding steady at 61% of total units. Amazon’s advertising business was a particular bright spot, with revenue growing 19% year-over-year to $13.9 billion, outpacing growth in the company’s core retail business.

AWS remained a significant driver of Amazon’s overall profitability in Q1 2025, with several key developments and metrics highlighting its continued importance to the company’s growth strategy:

Key AWS Metrics and Developments

• Revenue Growth: AWS generated $29.3 billion in revenue, increasing 17% year-over-year, which represents a slight deceleration from the 18.9% growth in Q4 2024.
• Profitability: AWS operating income grew to $11.5 billion, a 23% increase year-over-year, with operating margins expanding to 39.5%.
• Annualized Run Rate: AWS reached a $117 billion annualized revenue run rate in Q1 2025.
• AI Investment: Amazon continued its substantial investments in AI capabilities, including its previously announced $4 billion investment in Anthropic.
• Infrastructure Expansion: Capital expenditures increased significantly to support AWS growth, particularly for AI infrastructure and custom silicon development.

While AWS’s 17% growth rate is impressive given its scale, it fell short of analyst expectations of 17.4% growth and $29.42 billion in revenue. This marks the third consecutive quarter of AWS revenue misses. During the earnings call, management noted that AWS growth can be “lumpy” due to the unpredictable nature of enterprise sales cycles and the rapid growth of AI workloads.

AWS is facing capacity constraints related to AI infrastructure, which management indicated is limiting the ability to capture more AI-related revenue despite strong demand. The company expects these constraints to ease in the coming quarters as additional infrastructure comes online. Amazon is also developing its own custom chips for AI workloads, including the Trainium processor, to reduce reliance on third-party suppliers and potentially lower costs for customers.

In January 2025, Amazon implemented a change in the estimated useful life of certain servers and networking equipment from six years to five years due to the accelerated pace of technology development, particularly in AI. This accounting change resulted in an increase in depreciation and amortization expense of $217 million in Q1 2025 and is expected to impact 2025 operating income by approximately $700 million.

Amazon’s core e-commerce business showed continued strength in Q1 2025, with several notable developments:

Key Retail and E-commerce Highlights

• Delivery Speed: Amazon achieved record delivery speeds for Prime members in Q1, with more than 2 billion global units arriving same or next day. In the top 60 U.S. metro areas, nearly 60% of Prime member orders arrived same or next day.
• Sales Growth: Combined North America and International retail operations grew net sales by 7% year-over-year to $126.4 billion.
• Third-Party Sellers: Third-party seller services revenue grew 7% year-over-year, with third-party seller unit mix holding steady at 61% of total units.
• Subscription Revenue: Revenue from subscription services grew 9%, reflecting the continued growth of Prime membership and other subscription offerings.
• Advertising Growth: Advertising revenue increased by 19% to $13.9 billion, outpacing growth in the core retail business.

Amazon continues to prioritize providing value to customers through competitive pricing, broad selection, and fast delivery. The company held multiple deal events around the world in Q1, which drove strong customer engagement. Management highlighted improvements in inventory placement that enabled record delivery speeds for Prime members.

The company’s operational efficiency improvements in its fulfillment and logistics network continued to drive margin expansion in the retail business. However, one-time charges related to historical customer returns and costs to receive inventory pulled forward ahead of anticipated tariffs impacted margins in both North America and International segments.

Management expressed concerns about the potential impact of tariffs on pricing and demand, noting that some sellers have begun stocking up on inventory ahead of anticipated tariff implementations. CEO Andy Jassy emphasized that Amazon is “maniacally focused” on keeping retail prices low, and the company is encouraging sellers to move more inventory to the U.S. before higher tariffs take effect.

Amazon significantly increased its capital investments in Q1 2025, with substantial implications for the company’s future growth and profitability:

Capital Allocation Details

• Q1 Capital Expenditures: $24.3 billion in Q1 2025, a 74% increase year-over-year
• TTM Capital Expenditures: $88.0 billion for the trailing twelve months, up from $49.0 billion in the prior year period
• 2025 Guidance: Amazon expects approximately $105 billion in capital spending for 2025
• Investment Focus: Primary investment areas include AWS infrastructure (particularly AI-related capacity), custom silicon development, and fulfillment/transportation network enhancements

These substantial capital investments have had a significant impact on Amazon’s free cash flow, which declined 48% year-over-year to $25.9 billion on a trailing twelve-month basis, despite a 15% increase in operating cash flow to $113.9 billion. Management emphasized that these investments will support growth for many years to come, particularly as demand for AI-related cloud services continues to increase.

In addition to infrastructure investments, Amazon has continued its strategic investments in AI capabilities, most notably through its partnership with Anthropic. During Q1 2025, a portion of Amazon’s convertible notes investment in Anthropic was converted to non-voting preferred stock, resulting in a pre-tax gain of $3.3 billion that was included in non-operating income.

Management indicated that capacity constraints, particularly for AWS’s AI services, are limiting the company’s ability to capture more revenue despite strong demand. The substantial investments being made are intended to alleviate these constraints and position Amazon for future growth in high-margin cloud and AI services.

Amazon provided the following guidance for Q2 2025:

• Net Sales: Expected to be between $159 billion and $164 billion, representing growth of 7% to 11% compared to Q2 2024
• Operating Income: Expected to be between $13 billion and $17.5 billion, compared to $14.7 billion in Q2 2024
• Factors Impacting Guidance: The company specifically called out “tariffs and trade policies” and “recessionary fears” among factors that could affect its guidance

The Q2 operating income guidance fell below analyst expectations of $17.8 billion, contributing to a more than 2% decline in Amazon’s stock price in after-hours trading. Management noted that the guidance includes typical seasonal increases in stock-based compensation and additional costs related to Project Kuiper satellite launches.

During the earnings call, CEO Andy Jassy provided insights into current business trends and priorities:

• The company has not yet seen significant attenuation of demand due to economic concerns
• Some categories have seen heightened buying activity, potentially indicating customer stocking up ahead of tariff impacts
• Average selling prices of retail items have not appreciably increased yet
• AWS growth can be “lumpy” due to enterprise adoption cycles, capacity considerations, and technology advancements
• The combination of infrastructure modernization efforts and AWS’s AI capabilities is reaccelerating AWS’s growth rate

Looking ahead, Amazon continues to invest heavily in several strategic areas:

• Expanding AI capabilities across all business segments
• Building out fulfillment network capacity to support faster delivery speeds
• Developing custom silicon for AI workloads to reduce dependency on third-party chips
• Enhancing the Prime membership value proposition through expanded content and faster delivery

Management expressed confidence in the company’s long-term growth prospects despite near-term uncertainties related to global trade policies and economic conditions.