Amazon beat revenue expectations for its fourth quarter as the company continues to navigate various headwinds.
The Seattle tech giant reported revenue of $149.2 billion, up 9% year-over-year, topping both analyst expectations and the company’s own guidance.
But rising costs are cutting into Amazon profits, which fell 98% from the year-ago period to $278 million, or $0.03 per share. That includes a pre-tax valuation loss of $2.3 billion attributed to the company’s investment in Rivian.
Analysts expected revenue of $145 billion and earnings per share of $0.17 for the December quarter.
“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” CEO Andy Jassy said in a statement.
In a sign of the broader tech spending slowdown, revenue for Amazon Web Services grew just 20% in the fourth quarter, compared to 40% growth in the year-ago period. Amazon warned in October that companies were cutting their cloud spend and said that continued in Q4. Microsoft said it saw “moderated consumption growth” with its cloud platform in its most recent quarter.
Shares of Amazon were down as much as 6% in after-hours trading.
After a period of pandemic-driven meteoric growth, Amazon’s stock slid more than 30% last year amid rising inflation, recessionary fears, higher energy costs, and supply chain woes. The return to in-person shopping and slowing consumer spending isn’t helping Amazon, either.
In response to the macroeconomic conditions, Amazon has been in cost-cutting mode over the past several months. The company announced in January that it was laying off 18,000 workers, or about 5% of its corporate headcount.
It’s the largest layoff in Amazon’s history and, in raw numbers, the biggest by any tech company in the past year. Many other tech companies have also cut jobs amid the downturn.
Amazon CFO Brian Olsavsky said Thursday on a call with reporters that all laid off employees have been notified. The company took a $640 million severance charge in the fourth quarter related to the layoffs, he said.
Over the past year Amazon has also trimmed back and eliminated products, services, and entire businesses: its Scout neighborhood delivery robots, its Amazon Care primary healthcare business, bricks-and-mortar Amazon bookstores, the AmazonSmile charity program, and others.
Olsavsky said the company noticed patterns in consumer buying habits, such as less spending in discretionary categories and a greater percentage of sales in home essentials. He said Amazon was “very happy” with its fourth quarter and is “cautiously optimistic” heading into 2023, given that consumer spend may shift from the holiday period.
Here’s a quick breakdown of the company’s financials for the fourth quarter.
Online stores: Revenue was down 2% year-over-year to $64.5 billion. That compares to a 7% year-over-year increase in Q3, and 1% decline in the year-ago quarter. Customer demand in the Stores business “exceeded our expectations,” Jassy said in the earnings release.
Amazon Web Services: Amazon’s cloud business was up 20% at $21.3 billion, with $5.2 billion in operating income, continuing to help drive Amazon’s profits. That compares to a 27% revenue growth rate in Q3, and 40% growth in the year-ago quarter.
Advertising: Along with AWS, advertising is one of Amazon’s higher-margin businesses. The company last year started breaking out financials for its growing advertising arm, which brought in $11.5 billion in revenue in the quarter, up 19% over a year ago.
Third-party seller services: Amazon has been expanding services and products for third-party merchants in recent years. Revenue from third-party seller services was up 20% to $36.3 billion.
Shipping costs: Amazon’s shipping costs have spiked in recent years as the company aims to speed up delivery with its push for one-day shipping. The company is also now dealing with increased transportation and fuel costs. During Q4, Amazon spent $24.7 billion on shipping, up 4%.
Physical stores: The category, which includes Whole Foods and Amazon Go stores, posted revenue of $4.9 billion, up 6%. Olsavsky said Amazon took “a hard look” at its Amazon Fresh and Amazon Go footprint in the quarter, including whether to get out of leases or close locations.
Headcount: Amazon now employs 1.54 million people, down 4% year-over-year. That figure does not include seasonal and contract workers.
Prime: Subscription services revenue, which includes Prime memberships, came in at $9.1 billion, up 13%. Amazon last year announced a $20 increase in its annual Prime membership fee, to $139 from $119 previously.
