Amazon Report Weighs on Cloud ETF

The conglomerate reported strong results for 1Q, but pointed to a cloud slowdown in 2Q.

Shares of Amazon.com Inc. went on a wild ride after announcing first-quarter earnings after the bell on Thursday. The tech and e-commerce giant initially popped more than 10% after reporting numbers that beat on the top and bottom line, but it gave up all of those gains and more after the company’s CFO made some downbeat comments in the earnings conference call.  

Revenue growth at Amazon’s cloud unit in April was running “about 500 basis points lower than what we saw in Q1,” CFO Brian Olsavsky said. 

Those comments came as a surprise to investors, especially after revenues at Amazon Web Services had grown by 16% in 1Q—better than many investors had feared.  

Olsavsky blamed the slower growth on a continuation of a trend in which customers “optimize” their cloud spending by being more efficient and cutting back on wasteful spending. 

“When we talk with customers, they’re appropriately cautious about what they’re seeing in the economy. They’re trying to find ways to save money, as most companies are,” said CEO Andy Jassy. 

AWS’ poor April performance was a blow for investors who were hoping for signs of a turnaround in the cloud industry, especially after Microsoft had given a slightly more optimistic forecast for cloud spending in its earnings conference call two days earlier.  

“We're continuing to see optimization. But at some point, workloads just can't be optimized much further,” Microsoft CFO Amy Hood had said. 

After rising 1.3% on Wednesday (the day after Microsoft’s earnings report came out), the WisdomTree Cloud Computing ETF (WCLD) fell by around 1% today. 

E-commerce Strength  

Despite the 2Q growth warning for AWS, the rest of the numbers and commentary that came out of Amazon on Thursday were largely positive, which helped limit losses in the stock. 

Amazon’s overall revenues jumped 9% in 1Q (11% without the impact of currency fluctuations) thanks in part to a 21% increase in the company’s ad sales. 

Amazon has been increasingly monetizing its leading e-commerce platform by selling ads to third-party sellers. The firm is now the third-largest digital ad company behind Alphabet Inc. and Meta Platforms Inc.  

The company also reported strong profits in 1Q—$0.36 per share, or 70% higher than a year ago—thanks to the steep cost cuts that Amazon has made over the past year.  

Still, the resiliency of the rest of Amazon’s business wasn’t enough to offset the weakness in AWS, at least on Friday. 

Shares of Amazon were lower by around 3%, though they’re still up 26% on a year-to-date basis. 

The many ETFs that hold outsized positions in the stock faced a modest drag on Friday. 

The ProShares Online Retail ETF (ONLN), which has a massive 24% weighting in the stock, and the Consumer Discretionary Select Sector SPDR Fund (XLY), which holds 23% of the name in its portfolio, were both hovering around the unchanged mark on Friday. 

Follow Sumit Roy on Twitter @sumitroy2