Amazon earnings top estimates but stock falls; here’s what troubled investors

Amazon reported stronger-than-expected earnings for the first quarter of 2025, surpassing Wall Street estimates on both revenue and profits. On the surface, this should have been a win for the retail and cloud giant. But the stock market told a different story. Amazon (AMZN) stock slid after the announcement, highlighting broader concerns about the company’s forward-looking guidance and macroeconomic headwinds. 

Let us break down what happened in Amazon’s Q1 earnings, why the stock dropped despite strong results, and what lies ahead for the company as it braces for potential turbulence in the months to come.

Amazon earnings report: What it showed

Amazon's Q1 2025 performance exceeded expectations across key financial metrics:

• Revenue: $155.7 billion (vs. $155.2B expected)
• Earnings per Share (EPS): $1.59 (vs. $1.36 expected)
• Operating Income: $18.4 billion (vs. $17.5B expected)

Source: Company Report, Bloomberg

Segment performance showed mixed momentum:

Source: Company Report

While these numbers indicate operational strength, Amazon’s guidance for Q2 tempered investor enthusiasm, causing the stock to slip.

Amazon Earnings: Segment Performance Breakdown

Here’s a look at how different Amazon’s segments performed in Q1:

1. AWS Performance:
   
   • Revenue hit $29.3 billion, meeting expectations.
   • However, growth slowed to 17%—its slowest pace in over a year.
   • Microsoft, by contrast, reported a blowout quarter for Azure, with growth nearly double that of AWS. This has raised competitive concerns in the cloud space.
2. Third-Party Marketplace:
   
   • Revenue from third-party seller services increased 6% to $36.5B.
   • This marked a sharp deceleration from previous quarters.
   • A pullback from Chinese sellers, facing increased costs and uncertainty, may be partly responsible.
3. Advertising Business:
   
   • Continued its role as a key growth engine, with 18% YoY growth.
   • However, analysts warned that small- and mid-sized sellers, who drive ad spend, may start tightening budgets amid rising tariffs and global trade uncertainty.

Amazon Q2 guidance spooks investors

Amazon’s forecast for Q2 2025 raised red flags. The company projected:

• Revenue: $159–$164 billion (vs. $161.4B expected)
• Operating Income: $13–$17.5 billion (vs. $17.8B expected)

Source: Company Report, Bloomberg

The midpoint of the operating income guidance came in nearly 10% below Wall Street estimates. Investors reacted swiftly. Amazon stock dropped 4% in after-hours trading and continued to fall the following morning, according to Google Finance data

This pullback wasn't just about the numbers—it was about what those numbers signal. Lower-than-expected guidance suggests tighter margins and rising costs, all while economic uncertainty looms.

Why Amazon’s Q1 results signal challenges ahead

While the quarter itself was solid, Amazon’s internal and external signals point to several potential headwinds:

• Tariff Exposure: Many of Amazon’s sellers import goods from China. With tariffs on Chinese goods surging to 145%, UBS estimates that 50% or more of Amazon’s products could face price hikes. Amazon hasn’t yet seen demand fall, but noted early signs of consumers stocking up ahead of anticipated cost increases.
• Operational Margin Pressure: To remain price competitive, Amazon may have to absorb tariff-related costs, squeezing margins, especially in retail and logistics.
• Geopolitical Tensions: The company faced backlash from the White House after reports emerged that Amazon might show tariff costs on product pages. Although Amazon denied implementing this on its main site, the political friction reflects the precarious position tech companies like Amazon, Apple, and Meta face in today’s trade environment.

Amazon’s tariff fallout and response strategy

Amazon is walking a fine line between protecting its customers and preserving profitability. CEO Andy Jassy emphasized that the company has not yet seen weakened demand but is “planning for various outcomes.” Meanwhile CFO Brian Olsavsky stated that Amazon is doing everything it can to keep prices low “in a way that makes economic sense.”

Amazon has avoided rolling out any broad tariff-related price disclosures partly due to political pressure, and partly to maintain consumer trust. However, the company may still be forced to make pricing adjustments or rethink sourcing strategies as global trade tensions evolve.

Amazon’s stock decline is not tied to its Q1 performance, but rather to growing uncertainty. Investor sentiment took a hit due to a softer-than-expected Q2 outlook, slowing AWS growth compared to Microsoft, rising tariff and macroeconomic pressures, and vulnerability in advertising revenue as small sellers face financial strain. In a high-expectation, high-volatility market, even slight guidance misses or geopolitical risks can rattle confidence.

As growth in key segments like AWS and advertising slows and cost pressures mount, Amazon will need to execute with precision. The fundamentals remain strong, but navigating the months ahead will require strategic clarity, pricing discipline, and operational resilience, going ahead.

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