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Shares of Amazon.com Inc. jumped 13% in extended trading today after the company delivered second-quarter revenue that came in ahead of expectations, despite the company reporting a hefty $2 billion net loss.

The cloud computing and online retail giant reported a loss of 20 cents per share on revenue of $121.2 billion, up by 7% from the same period a year ago. Wall Street analysts had been modeling earnings of 52 cents per share on lower revenue of $119.53 billion, meaning Amazon bucked the trend among its big tech peers, many of which reported disappointing sales earlier in the week.

Ultimately, Amazon posted a $2 billion net loss in the quarter, which was blamed on a pretax evaluation loss of $3.9 billion stemming from an earlier investment in Rivian Automotive Inc. Even so, Amazon beat expectations in terms of operating income, which came in at $3.3 billion versus the $1.8 billion estimate.

Amazon followed up with better-than-expected guidance for the third quarter, projecting revenue of between $125 billion and $130 billion, versus Wall Street’s forecast of $126.5 billion.

Update: On Friday, Amazon’s stock rose 10.4%, to $134.95 a share.

Amazon Chief Executive Andy Jassy (pictured) said the company had suffered from inflationary pressures, leading to higher fuel, energy and transportation costs. But, he added, the company has been “making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” he explained.

Analysts had been wary ahead of today’s results, as the company has been faced with various obstacles to its business that include ongoing supply chain and worker disruptions, wage increases, rising inflation, higher fuel costs and the war in Ukraine.

However, Amazon put in a stellar performance, with its cloud computing business unit Amazon Web Services Inc. leading the way. AWS generated $19.74 billion in sales, up 33% from a year ago, with operating income of $5.7 billion, up from $4.1 billion in the same period one year ago. Without this contribution, Amazon would have posted a $2.4 billion operating loss for the quarter.

The AWS unit is vital for Amazon because it’s one of the company’s biggest profit drivers. The prospect of a coming recession is a big concern for analysts and shareholders, who worry that businesses may cut back on cloud spending. Recently, Mizuho Securities analysts James Lee and Wei Fang said in a July 20 note that corporate spending on cloud services will decline for the foreseeable future, in a shift that would have negative implications for AWS.

However, Amazon’s results today suggest that those fears may be overblown, coming just days after Microsoft Corp. posted similarly strong results, with Azure revenue rising 40% year-over-year.

Asked about the possibility of a slowdown in cloud spending during a conference call, Amazon Chief Financial Officer Brian Olsavsky said that a similar downturn in 2008 led to many businesses choosing the company’s cloud services instead of spending on their on-premises data centers. The implication is that AWS might see a similar boost this time around, with more companies gravitating to the cloud. That’s in line with Microsoft, which also sees increased demand for cloud services.

Olsavsky added that the company will continue to hire engineers for AWS and its advertising business, though it will exercise more caution in other areas.

“I think it’s right for people to step back and question their hiring plans,” the CFO said. “We’re doing that as well. I don’t think you’ll see us hiring at the same pace we did over the last year, or the last few years.”

Martin Garner, chief operating officer of CCS Insight, said Amazon’s growth rate of 7% might look a little sluggish, but should be considered in light of the very strong pandemic-fueled growth it enjoyed over the past couple of years.

“[Amazon’s] profits were affected by a large revaluation of its stake in Rivian, the electric vehicle manufacturer, as well as rising fuel costs, wage inflation and lower productivity in some newer areas,” Garner added. “AWS continued as the star performer within Amazon, up 33% in the quarter to $19.7 billion revenue, with a 36% operating margin.”

The strength of AWS helped Amazon to make up for weakness in its online store business, where revenue declined by just over 4%, to $50.89 billion. Wall Street had forecast a 2% decline. The company, which was one of the COVID-19 pandemic’s big beneficiaries when people switched to shopping online, has struggled with slowing consumer demand and higher costs. Amazon’s physical stores were a bright spot, though, with revenue growing 12%.

The wider retail industry has seen plenty of bad news recently. Walmart Inc. recently lowering its fiscal guidance as a result of consumers cutting back on spending of nonessential items. Shopify Inc. recently announced it is laying off 10% of its staff due to slowing revenue growth.

As for Amazon’s advertising business, it did surprisingly well, with sales rising by 4.3% in the quarter, to $8.76 billion, just beating Wall Street’s projections. The performance was all the more impressive considering that Amazon’s rivals in the space have all suffered. Yesterday, Meta Platforms Inc., the parent company of Facebook, recorded its first-ever drop in ad revenue and forecast a further decline in the next quarter. Alphabet Inc., parent of Google LLC, saw advertising growth slow to 12%, while YouTube’s ad revenue growth was limited to just 4.8%, having risen by 84% a year earlier.

Constellation Research Inc. analyst Holger Mueller said Amazon’s plan appears to be to grow its revenue side to match the previously overoptimistic cost side. He said Amazon’s overall quarterly loss is down sequentially and that Amazon believes it can break even – or even make a small profit for the full year by taking advantage of the holiday season.

“AWS remains a key profit source for Amazon, and the business grew by a very strong third in net sales,” Mueller noted. “Operating income was down though, as it looks like AWS is ready to invest more than Amazon’s other businesses at this point. Overall, it was a very strong quarter again for an AWS that is growing with customers, partners and developers alike.”

Charles King of Pund-IT Inc. said Amazon did well to beat revenue estimates and that the rosy outlook was a big boon for investors. He was also encouraged by the results of key business units such as AWS and advertising.

Amazon’s results will likely at least start to help relieve the scrutiny on Jassy, who replaced the company’s founder Jeff Bezos as CEO one year ago. Jassy has faced multiple challenges in his first year on the job, and is under pressure to return Amazon’s core retail business to growth.

“Overall, Amazon seems to be weathering most of the challenges that Andy Jassy has faced during his first year as CEO,” King said. “The company is doing measurably better than some competitors, including ad giants Facebook and Alphabet. Then again, it never hurts to issue a cheery earnings report on a day when optimism overcomes sour outlooks in the U.S. and other markets.”

Photo: Robert Hof/SiliconANGLE