Amazon earns almost no profit and slows growth

Amazon earns almost no profit and slows growth

Amazon earns almost no profit and slows growth

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Amazon reported no earnings in the latest quarter on Thursday, as unexpected weakness in its major cloud computing businesses helped slow overall sales growth to one of its lowest levels in decades.


The company posted sales of $149.2 billion in the three months to December, which included the holiday shopping season, up 9% from a year earlier.

A year ago, Amazon had its most profitable quarter ever, with net income of $14.3 billion. But the slowing economy and Amazon’s own attempt to roll back its expansion plans have squeezed profits this year, bringing profits down to $278 million. The reduced profit included a $2.3 billion lower valuation for its investment in electric truck maker Rivian.

The company said slowing growth and tight margins would continue in the first three months of this year.

While overall sales beat Wall Street expectations, as compiled by FactSet, overall earnings and performance from the cloud computing business fell short, sending shares down about 4% in post-trade. sale.

Andy Jassy, ​​the company’s chief executive, has spent the last year pushing the company to cut costs. Amazon has drawn up plans to lay off 18,000 corporate and technology employees; it added fees for grocery deliveries that were once free; and cut back on a rampant warehouse expansion that left too much space for the company.

“Maniacally focusing on customer experience will always be a top priority for us,” Mr. Jassy said on a call with investors. “We are working very hard to rationalize our costs and trying to do so at the same time as we don’t abandon long-term strategic investments that we believe can significantly change the broader customer experience and change Amazon. “

John Blackledge, an analyst at Cowen & Company, estimated in December that if investors cut profitable cloud computing and advertising businesses, the rest of Amazon, which includes its retail operations, studios, devices and… ‘other consumer efforts, was losing more than 25 billion dollars. in 2022.

Investors are watching developments in the company’s cloud computing division closely because it has been such a big profit generator. Microsoft, Amazon’s closest cloud computing competitor, last week warned that new business had slowed in December and is expected to continue to slow in the current quarter as the fragility of the economy has led business customers to exercise caution in their spending.

Amazon’s cloud business grew 20% to $21.4 billion, its slowest growth ever, and segment operating profit fell slightly to $5.2 billion.

One of the biggest selling points of cloud computing is the ability to quickly reduce costs as demand or needs change, and “we’re going to help our customers find a way to spend less money” and leverage their technology more effectively, Mr. Jassy said.Business customers are acting cautiously, he said, adding, “You see that in pretty much every business, and we’re also thinking very carefully about streamlining our costs.

Brian Olsavsky, the company’s chief financial officer, said on a call with reporters that customers were still signing deals, but “we expect to see slower growth rates in the coming quarters.”

Consumer struggles with inflation and rising interest rates have manifested themselves in Amazon’s retail business. The profitable advertising unit saw its sales rise 19% to $11.6 billion. But Amazon’s core e-commerce business of selling products directly to consumers fell 2% to $64.5 billion. The services it offers to third-party sellers, which supply 59% of products sold, rose 20% to $36.3 billion.

Mr. Olsavsky said customers were spending less on discretionary products and favoring lower-priced items and value brands. He said the company was pleased with how the quarter went given the overall economy. “We’re just cautiously optimistic going into 2023, because we know part of it is vacation demand that people won’t reduce,” he said.

Mr Olsavsky said some of the efforts over the past year to run its fulfillment and delivery operations more efficiently have paid off, with the company more likely to have “the right workforce.” work, in the right place, at the right time” to respond to consumers. request.

Some cost-cutting efforts have near-term expenses, including $640 million in severance pay for enterprise and tech employees and $720 million to cut where it operates grocery stores and Amazon Go marketplaces.

The company is also busy finding growth when it is already so big. Its Prime membership program may have reached a saturation point in the United States, the company’s most important market, according to Consumer Intelligence Research Partners. “Prime membership has essentially stopped growing in the United States,” the researchers wrote last month, estimating that 168 million people in the United States are members. Subscription revenue, considered by investors to have high profit margins, rose 13% in the quarter.

The company’s hiring in the wake of the pandemic, when it more than doubled its workforce, came to a halt. Between layoffs and unusually high turnover at its warehouses, it ended the year with 1.54 million workers, about 4% less than a year earlier.


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