The holidays were good to Amazon, with the final quarter of 2022 pulling in $149.2 billion in net sales and handing the company a rare win: This time, revenue actually beat analysts’ estimate of $145.8 billion, according to its earnings report, released Thursday.
And yet, shares sank 3 percent on the news.
A closer look at the numbers reveals why. E-commerce, Amazon’s main business, slid in under expectations, with $64.5 billion in online stores net sales versus the $65.03 billion anticipated. Amazon Web Services, or AWS, the cloud division that has become a pivotal part of the business, came up short for the second quarter in a row. Although its $21.3 billion in sales showed growth of 20 percent, the figure still disappointed because projections had pegged $21.76 billion.
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All of it shaped a lackluster picture, with the quarterly earnings per share at just 3 cents. Analysts expected 17 cents.
While revenue across 2022 grew, it only amounted to 9 percent, marking Amazon’s slowest year of growth in its 26 years as a public company, with a net loss of $2.7 billion for the full year.
Blame inflation and other economic pressures for muting consumer spending. Amazon did, and now it’s offering a relatively soft outlook, with guidance for the first quarter of 2023 landing between $121 billion and $126 billion, which would mark 4 to 8 percent of year-over-year growth. But analysts have been eyeing the upper end of the range, with $125 billion.
Cue the drop in stock. The news immediately shaved 3 percent off of shares in after-market trading, punctuating a year that nearly halved Amazon’s stock price.
Not that there weren’t a few bright spots in the mix. The company’s physical stores did slightly better than experts predicted, with sales of $4.95 billion hovering above the $4.93 billion expected. The company’s advertising business beat expectations by an even wider margin, with $11.56 billion handily beating the $11.38 billion expected.
In a statement, chief executive officer Andy Jassy said customer demand in the fourth quarter exceeded the company’s expectations, adding that he’s “also encouraged by the continued progress we’re making in reducing our cost to serve in the operations part of our Stores business.”
Amazon has been laser-focused on trimming costs, including a major layoff of 18,000 corporate workers — the company’s largest in its history — a hiring freeze and holding off on new warehouse facilities, among other things. “In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” Jassy said.
As for takeaways from Amazon’s holiday quarter, they come in both macro and micro form: “We saw [consumers] spend less on discretionary categories and shift to lower-priced items and value brands in categories like electronics. We also saw them continue to spend on everyday essentials such as consumables, beauty and shop lines,” said Brian Olsavsky, senior vice president and chief financial officer, in an earnings call on Thursday.
Olsavsky also made it clear that the e-commerce business has been increasingly relying on third-party sellers, which made up a record 59 percent of overall unit sales over the quarter, which included Prime early access sales as well as holiday deals and other promotions.
But operating income in the quarter was effectively cut in half because of three large items that added roughly $2.7 billion of cost, he explained — namely employee severance; adjustments to property, equipment and operating leases, and changes regarding self-insurance liabilities, which mainly affected the North American operation.
“If we had not incurred these charges in Q4 our operating income would have been approximately $5.4 billion.”
Given that, he believes the business is on the right track, at least strategically, with Amazon continuing to work on areas like the shopping experience. An example in the apparel business is “when you’re looking at clothing you might buy [and] be able to see virtually your shoes with that outfit, to see how it looks and changes your customer experience, your buying experience,” said Olsavsky. “We will continue to work very hard on those customer experiences and we have a lot more planned.”
What that will look like is anyone’s guess, as is whether it will be enough to overcome the macroeconomic forces stress-testing Amazon and its peers in technology and retail.
On Thursday, as Jassy and Olsavsky reported their results, so did Apple and Alphabet executives — and like Amazon — the results drove shares down more than 3 percent for these tech behemoths. Meta somehow managed to get by unscathed, not because it did so well, but because it didn’t do as badly as analysts and investors feared.
Think of it as a sign of the times, and it’s one among many. Google’s parent company Alphabet was undercut by dwindling ad sales, but didn’t have the benefit of lowered expectations, like Meta. Apple, typically a Wall Street darling and earnings star, saw revenue drop after its supply chain was complicated by a factory shutdown. In essence, it looks like some of the biggest winners of the pandemic are now some of the biggest losers. Whether they can innovate their way out of this mess isn’t clear, but at least some experts believe they should try.
Apple, for instance, should be eyeing some of the tech trends on the horizon, according to Neil Saunders, managing director of GlobalData. “There are a range of new areas like virtual reality, the metaverse and health technology where Apple should be making more of an impact,” he said. The iPhone company is rumored to be preparing an augmented or mixed-reality headset, which would fit the bill.
Amazon could do likewise. It already offers augmented reality shopping features, like the example mentioned, and its experience includes a set of connected glasses, the Echo Frames, among other things — like AWS’ SimSpace Weaver, a service that helps customers create and operate large-scale spatial simulations to model traffic patterns across a whole city, a factory floor or a store.
The experimental risk-taking company that Jeff Bezos founded wouldn’t hesitate. But today’s Amazon is navigating an unfamiliar economic and cultural landscape, and in 2022, it took on a more careful, considered approach to its resources and investments. This spans tech projects to retail priorities, including non-grocery brick-and-mortar stores.
“I think when we looked at some of our physical business investments, physical store investments, I think there was just some areas where we didn’t have conviction that they were going to be big needle movers for Amazon,” said Jassy. This is most apparent in the decision to close down Amazon Four-Star bookstores, but “as we got into the early part of the summer where we start our operating planning process, there were a lot of things happening in the macro economy.
“We want to actually do a pretty good, thorough look about what we’re investing and how much we think we need to.”