Amazon Q1 2025 Earnings: Investing in AWS and Hoping for the Best
It was the night after earnings, and all through the house. Not a tariff was stirring, not even a mouse. The sellers were hung by the chimney with care... wait a minute, that sounds bad.
Scratch that, reverse it. Let's back that up and talk about some good news:
* Amazon had and used some cash to pull forward first-party inventory to beat the tariffs (for now). (Translation: We can delay but not eliminate the oncoming train)
* Amazon has 2m+ 3P sellers which will have "all sorts of different strategies" which will help Amazon beat the tariffs. (Translation: We don't know how it will play out - but hope some of our sellers have good plans)
* Ad business growing 19% y/y off a high base: ~$14B generated in the quarter.
Bad News Spun as Good News:
* Amazon spun its high "China Direct" seller concentration (which - everyone knows it is high) as a positive saying these folks have lower costs than American resellers of Chinese products. (Translation: Our seller's post-tariff reduced margin is their "opportunity" to "take share" instead of raising prices. Yes they actually said that.)
Decent News:
* Overall revenue up 10% y/y, NA segment revenue up 8% y/y. Pretty standard really.
* Third-party selling unit mix was steady at 61%
More bad news spun as good news:
* Free cash flow decreased by 50% to $26B for the trailing twelve months (TTM), compared with $50 billion for the previous year's TTM. Why? They pulled forward all this inventory and invested so much in new chips for AWS. But this is because AWS AI efforts are "supply constrained" -- so... good news?
And finally, the tariff stuff.
How do tariffs impact Amazon?
* None of us knows.
* Has not yet affected demand.
* ASP of retail items have not yet gone up significantly yet.
What is Amazon doing about tariffs?
* Pulled forward extra first-party inventory in Q1 in response to tariffs.
* Hoping that customers trust them more than others.
* Hoping some (apparently deep-pocketed) sellers will decide to "take share" and pull-forward inventory in response to tariffs.
All in all, pretty tame earnings call with some bright spots (ads) and unknowns (retail). Grocery did get a shoutout and tried to say that regular Amazon is one of the largest grocers in the world. Partially true -- it's just a wacky wide selection!
