Amazon reported its fourth-quarter financial results on Thursday, beating Wall Street expectations despite ongoing inflation and economic concerns weighing on consumers and businesses.
The e-commerce and cloud giant generated $149.2 billion in revenue during the vital holiday quarter, up 8.6% compared with the same period last year. Earnings per share came in at $0.03, surpassing average analyst forecasts of $0.17 per share.
Key Fourth Quarter Results
Several parts of Amazon’s sprawling business empire propelled growth during the period spanning from October to December 2022:
| Business Segment | Q4 Revenue | Year-Over-Year Change |
|---|---|---|
| Online Stores | $83.8 billion | 7% increase |
| Physical Stores | $7.9 billion | 6% increase |
| Third-Party Seller Services | $35.5 billion | 13% increase |
| Subscription Services | $11.3 billion | 14% increase |
| AWS Cloud | $21.3 billion | 20% increase |
Amazon saw particular strength among its third-party sellers, subscription services like Prime Video, and its market-leading AWS cloud computing platform.
The company’s online and physical stores also showed respectable growth despite inflation hovering around 6.5% in the United States. Management pointed towards steep discounts and deals leading up to the holidays as a driver of increased e-commerce order volume.
“During the holiday season we doubled down on our commitment to offer lower prices, broad selection and fast delivery to our customers across the U.S.,” said CEO Andy Jassy.
Guidance Disappoints, Stock Falls
Though Amazon beat expectations for the recently closed quarter, its guidance for Q1 2023 came up short. Management sees revenue hovering between $121 billion and $126 billion, compared to the $125.1 billion Wall Street had projected.
Operating income is anticipated between $0 and $4 billion, which could result in Amazon’s fourth unprofitable quarter out of its last five reporting periods. Ongoing cost pressures related to its massive fulfillment infrastructure and technology investments continue hampering the bottom line.
Investors balked at the disappointing outlook, sending Amazon’s share price down 4% in after-hours trading on Thursday. The stock has plunged nearly 50% over the last 12 months amid a broader tech sector rout.
Key Factors to Watch
With Amazon shares floundering at multi-year lows, analysts see a few key factors determining whether a turnaround could materialize later this year:
Macroeconomic Trends
Consumer spending and business technology budgets remain at the mercy of high inflation and rising interest rates. If economic growth shows signs of accelerating in the back half of 2023, it could reinvigorate Amazon’s core online retail operation as well as cloud computing demand.
Prime Subscription Trends
Amazon needs to keep Prime members engaged across its expanding suite of benefits including streaming video/music, free delivery, healthcare services, and more. Strong growth in this high-margin recurring revenue stream boosts the profit engine.
AWS Market Share
Cloud infrastructure spending is expected to keep growing at a 15% annual clip through 2027 despite economic uncertainty. Amazon leads the market with a 32% share today – preserving and expanding this top positioning will be pivotal.
“The cloud shift is early and Amazon has many levers to drive profitable growth, but uncertainty lingers around the macro outlook,” noted Bank of America analyst Justin Post following earnings.
The Road Ahead
Amazon expects capital expenditures between $63 billion and $68 billion this year as it continues investing heavily into logistics and technology. Management is making structural changes across the company to streamline costs, aiming to balance growth prospects with profitability after losing $3 billion in 2022.
“We’re also taking meaningful steps to tighten our cost structure…which will lead to smaller losses in 2023 and a return to profitability in Q4,” said CFO Brian Olsavsky.
With dominant positions across numerous secular growth markets like e-commerce, cloud computing and digital advertising, Amazon still has enviable long-term opportunities. But restoring consistent profit growth in today’s challenging economic environment remains an uphill battle in the year ahead.
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