This is the Amazon everyone should have feared

At the time, Amazon had once again posted its largest quarterly profit in history—$2.5 billion at the time—on the back of its two fastest-growing businesses that hadn’t even existed when Jeff Bezos took the company public: Amazon Web Services and Amazon Advertising.

“An Amazon that is posting growing profits from its non-core business,” I wrote back in 2018, “means an Amazon that can continue to keep prices low and invest in ever-speedier delivery times to widen its defensive moat in its main retail business. That should be a very scary realization for rivals.”

And it mostly has been. Fast forward to last week, when Amazon announced its financial results for the first quarter of 2024. Amazon’s net income surpassed $10 billion for the quarter and would have exceeded $12 billion if not for a $2 billion non-cash expense from its investment in the electric carmaker Rivian. 

On the revenue side, its year-over-year growth rates accelerated across the board, for its AWS, advertising, and core e-commerce divisions, respectively. That’s a revenue acceleration even as AWS is on track to surpass $100 billion in annual sales by the end of 2024, while its investments in what could be a transformational technology of generative AI are just ramping up. The law of large numbers doesn’t seem to be holding AWS back.

Meanwhile, Amazon’s ad business should top $50 billion for the first time in 2024, and that’s with the tech giant just starting to really court TV advertisers to buy ads on Prime Video, thanks to its deal to stream NFL games—and, soon, NBA basketball games too.

Then there’s Amazon’s “third-party seller services” division—another highly profitable business line consisting of all the fees, however controversial, that the company charges independent merchants to sell and ship goods sold through its shopping sites. That business grew 16% year over year in the first quarter, and the $35 billion in revenue it generated is almost as much as AWS and Amazon’s ad business combined.

Over the decade-plus that I’ve covered this company, it’s become common for stock analysts to ask Amazon officials on earnings calls whether the company is currently operating in more of an investing cycle than a profits one, or vice versa. And on last week’s earnings call, an analyst posed such a question once again. But the answer was much different than ever before.

“I think we’re in a position to do both is the short answer,” Amazon CEO Andy Jassy said on the call. “I think there’s actually an opportunity in our existing large businesses—in the stores business along with advertising and AWS—there’s a lot of growth in front of us. And I think we’re investing in a meaningful way. But I think…we don’t believe that we’re at the end of what we can do in terms of improving our cost structure on the store side.”

For the first time in a very long time—maybe in the company’s 30-year history—Amazon is at a point where it can afford “to do both.” That’s noteworthy.

To be clear, the company is facing myriad challenges, including some self-induced. Its plans to reinvent brick-and-mortar shopping through technology haven’t gone as planned. The Federal Trade Commission’s antitrust lawsuit against Amazon, however unlikely, could someday force the company to overhaul its business or even split it into parts. Amazon’s relationship with the hundreds of thousands of sellers who account for 60% of the company’s product sales has probably never been worse no matter what Amazon’s CEO says. And as the nascent generative AI sector has boomed, Amazon has found itself in some instances trailing competitors. 

But for today, considering the financial results Amazon is showing, and considering the fact that the company is finally at a size that it can, as Jassy said on the earnings call, both invest aggressively in its future while also pumping out real profits, this certainly feels like the Amazon everyone should have feared. 

Again.

Jason Del Rey

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The rest of today’s Data Sheet was written by David Meyer.

NEWSWORTHY

Bad Apple. Apple received backlash for its new iPad advertisement, in which a huge hydraulic press crushes art supplies, musical instruments, and books, transforming them into an iPad. Many social media users have said the commercial and destruction it shows feels “grim” and “horrifying,” because it depicts the replacement of art and creativity with technology, VentureBeat reported.  

xAI funding. Elon Musk’s AI startup xAI is expected to close its funding round as soon as this week, with a valuation of $18 billion, Bloomberg reported. The company is behind the chatbot Grok, which is available on X, formerly Twitter. Musk intends for xAI to compete with OpenAI, the ChatGPT maker he helped found. 

Neuralink issue. Elon Musk’s brain implant company Neuralink experienced a problem with the implant in its first human patient, the Wall Street Journal reported. Some of the threads that record neural activity retracted from the implant, which reduced the amount of data it could collect.

IN OUR FEED

"When the internet first came about, Google didn’t even exist then. We weren't the first company to do search. We weren't the first company to do email. We weren't the first company to build a browser. So I view this AI as—we are in the earliest possible stages."

—Alphabet CEO Sundar Pichai told Bloomberg about the perception that Google missed the AI wave when OpenAI released its large language model ChatGPT.

IN CASE YOU MISSED IT

TikTok will automatically label AI-generated posts using Adobe’s Content Credentials, by Sharon Goldman

Elon Musk’s Tesla quietly slashed over 3,400 job postings, leaving just 3 listed in the U.S., by Orianna Rosa Royle

Google employees grill Sundar Pichai and CFO Ruth Porat on why they’re not getting pay rises amid blowout earnings, by Eleanor Pringle

OpenAI is touting a new plan to protect creator works—here’s why it won’t actually resolve AI’s copyright crisis, by Sharon Goldman 

CEO Dara Khosrowshahi wants more workers to return to the office—preferably in an Uber, by Marco Quiroz-Gutierrez

Smartphones have taken over our lives and free time—but the process began with the phonograph more than 100 years ago, by Gary S. Cross

BEFORE YOU GO

Succession talks. After 13 years at the helm of Apple, Tim Cook has served as chief executive longer than most Fortune 500 CEOs. While Bloomberg expects Cook to put at least another three years in, he can’t remain in the top spot forever. COO Jeff Williams is a contender, but head of hardware engineering John Ternus has gained favor recently, Bloomberg reported.