Amazon posts solid sales but softer cloud growth

Amazon posted stronger than expected sales for the 2022 holiday shopping season, but shares fell in after-hours trading on slowed growth for its cloud computing division, AWS.

Overall, net sales for the ecommerce group, which has been battling cost-conscious consumers and spiralling costs, were $142.2bn in the three months to December 31, up 9 per cent from 2021 and exceeding analysts’ estimates. Robust sales events during the holiday season offered glimmers of hope that Amazon’s retail business may be staging a recovery.

But operating income for AWS, its largest profit driver, dropped marginally on the prior year. Sales growth fell to 20 per cent, compared to 40 per cent a year earlier.

“Everyone’s trying to cut their budgets,” said Amazon’s chief financial officer, Brian Olsavsky, adding that the company had been working with belt-tightening clients to reduce cloud costs by using different services.

“We feel very bullish about where we are . . . but we do expect to see some slower growth rates for the next few quarters,” he said.

Growth in January was in the “mid-teens”, Olsavsky told investors.

Still, AWS helped prop up Amazon’s bottom line. Its non-cloud businesses recorded $2.4bn in operating losses in the quarter.

Amazon’s overall operating income fell to $2.7bn, from $3.5bn in the same period a year earlier. Analysts had expected $2.65bn, according to FactSet.

It said its operating income was hit by $2.7bn in charges related to “self-insurance liabilities, impairments of property and equipment and operating leases, and estimated severance costs”.

Amazon began jobs cuts in late December and said in January it was looking to eliminate about 18,000 roles across several business units. Severance costs totalled $640mn, Olsavsky said.

The company also recorded a $720mn impairment in relation to closing some of its grocery store locations.

“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” chief executive Andy Jassy said in a statement accompanying the results.

Net income came in at $300mn, down from $14.3bn a year earlier. Amazon’s bottom line has been heavily disrupted by its stake in electric vehicle maker Rivian, which lost $2.3bn in value in the final quarter of 2022. During the same quarter in 2021 its value added $11.8bn.

Amazon expected net sales in the current quarter of between $121bn-$126bn, mostly in line with Wall Street’s expectations. Shares were down about 4 per cent in after-hours trading as investors digested the varied fortunes of Amazon’s sprawling business units, although the shares later recovered ground.

“Amazon’s mixed Q4 performance shows that ecommerce is resilient even in the face of inflation and the threat of recession,” said Guru Hariharan, of ecommerce management platform CommerceIQ.

“Shoppers are continuing to shop more and more online despite the fact that Amazon, and online in general, over-indexes on discretionary goods versus total retail where budget-conscious shoppers might be inclined to pull back on spending in difficult times.”