Amazon reports almost no profit and slowing tech demand

Amazon indicated that slowing growth and tight margins would continue in the first three months of this year. PHOTO: AFP

NEW YORK – Amazon on Thursday reported almost no profit in the latest quarter, with unexpected weakness in its big cloud computing businesses helping to slow overall sales growth to one of its lowest levels in decades.

The company reported US$149.2 billion (S$195.6 billion) in sales in the three months ended December, which included the vital holiday shopping season, up 9 per cent from a year earlier.

A year ago, Amazon had its most profitable quarter ever, with US$14.3 billion in net income. But the downshifting economy and the company’s own attempt to roll back expansion plans cut into its earnings this year, hacking profit back to US$278 million.

The company indicated that the slowing growth and tight margins would continue in the first three months of 2023.

While the overall sales surpassed Wall Street expectations, as compiled by FactSet, the overall profit and the performance of the cloud computing business fell short, sending shares of the stock down as much as 6 per cent in aftermarket trading.

Mr Andy Jassy, the company’s chief executive, spent last year pushing the company to trim costs. Amazon had been working through plans to lay off 18,000 corporate and tech workers. It added fees for grocery deliveries that had once been free and cut back from a breakneck warehouse expansion that left the company with too much space.

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

Mr John Blackledge, an analyst at investment bank Cowen, estimated in December that if investors stripped out the profitable cloud computing and advertising businesses, the rest of Amazon, which includes its retail business, studios, devices and other consumer efforts, lost more than US$25 billion in 2022.

Investors closely watch how the company’s cloud computing division is faring, since it has been such a big profit generator. Last week, Microsoft – Amazon’s closest competitor for cloud computing – warned that new business slowed in December and was expected to continue to slow in the current quarter as the fragile economy had led business customers to be cautious about spending.

Amazon’s cloud business grew 20 per cent to US$21.4 billion, its slowest growth on record, and the segment’s operating profit fell slightly to US$5.2 billion.

Consumers’ struggles with inflation and rising interest rates showed up in Amazon’s retail business. The profitable advertising business saw sales grow 19 per cent to US$11.6 billion, but Amazon’s core e-commerce business of selling products directly to consumers was down 2 per cent to US$64.5 billion. The services it offered to third-party sellers, which provided 59 per cent of products sold, were up 20 per cent to US$36.3 billion.

The company is also dealing with finding growth when it is already so large.

Its Prime membership programme 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 US,” the researchers wrote in January, estimating that 168 million people in the US have a membership. Subscription revenue, seen by investors as having high profit margins, was up 13 per cent in the quarter.

The company’s hiring since the pandemic, when it more than doubled its workforce, has ground to a halt. Between layoffs and unusually high turnover at its warehouses, it ended the year with 1.54 million workers, about 4 per cent fewer than a year earlier. NYTIMES

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