Amazon Q1 2025 slides: Strong profit growth overshadowed by free cash flow decline

Amazon.com Inc (NASDAQ:AMZN) released its first quarter 2025 financial results on May 1, showing robust growth in revenue and profits while facing a significant decline in free cash flow. The e-commerce and cloud computing giant reported a 64% surge in net income despite after-hours trading showing a 3.93% decline to $182.72.

Quarterly Performance Highlights

Amazon reported Q1 2025 net sales of $155.7 billion, representing a 9% increase year-over-year (10% when adjusted for foreign exchange impacts). The company’s operating income rose 20% to $18.4 billion, while net income jumped 64% to $17.1 billion compared to the same period last year.

The company’s sales growth continues to build on momentum seen in previous quarters. In Q3 2024, Amazon had reported an 11% revenue increase and a 56% surge in operating income, indicating sustained performance across its business segments.

As shown in the following chart of quarterly net sales performance and segment breakdown:

On a trailing twelve-month basis, Amazon’s net sales reached $650.3 billion, a 10% increase year-over-year. The company’s operating income for the same period climbed 51% to $71.7 billion, while net income rose 75% to $65.9 billion, demonstrating significant margin expansion.

Segment Analysis

Amazon’s North America segment, which represents 60% of total revenue, delivered $92.9 billion in net sales for Q1 2025, an 8% increase year-over-year. Operating income for this segment grew 17% to $5.8 billion, showing improved profitability in the company’s core market.

The following chart illustrates North America’s performance:

The International segment showed more modest growth, with net sales increasing 5% year-over-year (8% on an FX-adjusted basis) to $29.3 billion. Operating income for international operations reached $1.0 billion, continuing the segment’s trend toward sustainable profitability.

The International segment results are detailed in this chart:

AWS, Amazon’s cloud computing division, continued to be a standout performer with net sales growing 17% year-over-year to $33.5 billion. Operating income for AWS increased 23% to $11.5 billion, representing approximately 63% of Amazon’s total operating income despite accounting for only 21% of total revenue.

The following chart shows AWS’s continued strong performance:

Free Cash Flow Concerns

Despite the strong growth in revenue and profits, Amazon’s trailing twelve-month free cash flow declined 48% year-over-year to $25.9 billion. This significant drop appears to be driven by substantial increases in capital expenditures, particularly related to AWS infrastructure and AI capabilities.

The company’s operating cash flow increased 15% year-over-year, but purchases of property and equipment, net of proceeds from sales and incentives, nearly doubled to $88.0 billion on a TTM basis.

This concerning trend in free cash flow is illustrated in the following chart:

The reconciliation details reveal that while operating cash flow has been growing steadily, reaching $113.9 billion on a TTM basis in Q1 2025, capital expenditures have accelerated dramatically from $49.0 billion in Q1 2024 to $88.0 billion in Q1 2025.

Forward-Looking Implications

Amazon’s increased capital expenditures align with statements made during its Q3 2024 earnings call, where the company projected $75 billion in capital investments for 2024, primarily to enhance AWS infrastructure and AI services. The actual TTM capital expenditure of $88.0 billion suggests even higher investment levels than previously indicated.

While these investments may position Amazon for future growth, particularly in high-margin areas like AWS and AI, they are currently putting pressure on free cash flow. This trade-off appears to be concerning investors, as reflected in the after-hours stock price decline despite strong headline numbers.

The company’s operating income continues to show impressive growth, with a 20% year-over-year increase in Q1 2025:

Similarly, net income growth has accelerated, with a 64% year-over-year increase in Q1 2025:

Amazon’s focus on managing dilution is evident in its shares outstanding data, with stock-based awards outstanding decreasing from 385 million in Q1 2024 to 263 million in Q1 2025, while common shares outstanding increased modestly from 10.4 billion to 10.6 billion.

As Amazon continues to invest heavily in infrastructure and AI capabilities, investors will be watching closely to see when these investments begin to translate into improved free cash flow generation while maintaining the strong revenue and profit growth demonstrated in this quarter’s results.

Full presentation:

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