Still a Pure Growth Play
AWS is in good shape.
All the numbers add up, but Amazon.com $AMZN still didn’t declare a dividend on Tuesday afternoon.The share price surged as much as 5 percent in post-close trading after it sagged more than 3 percent during regular hours, as management reported first-quarter earnings per share of $0.98 on revenue of $143.3 billion.
AMZN, which beat FactSet-compiled consensus expectations of $0.84 per share on revenue of $142.6 billion, remains the one S&P 500 component with a trillion-dollar market capitalization that doesn’t pay a dividend.
Microsoft $MSFT made its first quarterly dividend payment of $0.08 per share in March 2003 and recently declared a $0.75 payout. Apple $AAPL, which will report fiscal second-quarter earnings tomorrow, has been a regular dividend-paying stock since July 2012.
Alphabet $GOOGL declared its first quarterly dividend, $0.20 per share, upon release of its results last week. Meta Platforms $META paid its first dividend in March. And even Nvidia $NVDA pays $0.04 per share per quarter.
The stock is well appreciated, posting another double-digit gain so far this year and comfortably outperforming the S&P 500 as well as MSFT, AAPL, and fellow non-dividend-payer Tesla $TSLA.
And financial and operating results continue to be stellar.
Sales for Amazon Web Services grew by 17 percent year over year, and, as CEO Andy Jassy noted in the company’s press release, the segment’s annual revenue run rate is now at $100 billion.
“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate," Jassy said.
CFO Brian Olsavsky noted “strong demand signals” from customers on the AWS side during management’s conference call. “They’re signing longer deals with larger commitments, many with generative AI components.”
According to Olsavsky, generative AI is now a “multi-billion dollar revenue run-rate business” for AMZN. That’s the first dollar figure management has used to describe its efforts on that initiative.
The CFO also said capex would “meaningfully increase” this year to support AWS growth. Management has previously said it will spend more than $150 billion over the next decade and a half to develop more data centers.
Operating income grew to $15.3 billion compared to $4.8 billion a year ago. AMZN generated free cash flow of $50.1 billion during the 12 months ended March 31 compared to an outflow of $3.3 billion for the prior corresponding period.
Management guided to net sales growth of 7 percent to 11 percent for the second quarter to a range of $144 billion to $149 billion. Operating income will be $10 billion to $14 billion compared to $7.7 billion in the second quarter of 2023.
Ahead of the earnings announcement Al Root of Barron’s made the argument “why Amazon should start paying a dividend.”
The big number here – and it is a big number – is the more than $90 billion of free cash flow the company has generated over the past decade.
AMZN executed a $6 billion share buyback in 2022 to generate a capital return of 7 percent.
That compares with an average free-cash-flow return of approximately 75 percent for the other trillion-dollar companies.
From the Research Desk, we learn that 13 companies have declared their first-ever dividend payments over the trailing 12 months. Another 323 have announced dividend increases.
According to Citi Research head of US equity strategy Scott Chronert, an eventual transition to a lower-interest-rate environment will make dividend-paying stocks more attractive.
Big Tech is already in on the act, as the segment matures amid broad changes in market leadership and below-the-surface trends.
Indeed, just below, we take a Deep Dive into price action in the commodities complex.
And we close out today’s issue with a look at the 2:00 p.m. ET release of the Federal Open Market Committee policy statement and Jerome Powell’s follow-up press conference.