Amazon has solid sales but weaker cloud growth

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

Overall, the e-commerce group, which has struggled with cost-conscious consumers and rising costs, had net sales of $142.2 billion for the three months ended December 31, up 9 percent from 2021 and topping analyst estimates. Robust selling events over the holiday season offered glimmers of hope that Amazon’s retail business might be recovering.

But AWS operating income, its biggest earnings driver, declined slightly year over year. Revenue growth slowed to 20 percent, compared to 40 percent a year earlier.

“Everyone’s trying to tighten their budgets,” said Brian Olsavsky, Amazon’s chief financial officer, adding that the company has worked with customers who have tightened their belts to reduce cloud costs by using different services reduce.

“We are very optimistic about where we are. . . but we expect slightly slower growth rates over the next few quarters,” he said.

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

Still, AWS helped shore up Amazon’s bottom line. Its non-cloud businesses posted operating losses of $2.4 billion for the quarter.

Amazon’s total operating income fell to $2.7 billion from $3.5 billion in the same period last year. According to FactSet, analysts had expected $2.65 billion.

Operating income was impacted by charges of $2.7 billion related to “auto-insurance liabilities, impairment of property, plant and equipment and operating leases, and estimated severance costs.”

Amazon began cutting jobs in late December, and in January it announced plans to cut about 18,000 jobs across multiple businesses. The severance costs totaled $640 million, Olsavsky said.

The company also recorded a $720 million impairment related to the closure of some of its grocery stores.

“We face an uncertain economy in the near term, but we remain reasonably optimistic about the long-term opportunity for Amazon,” Chief Executive Andy Jassy said in a statement on the results.

Net income was $300 million compared to $14.3 billion last year. Amazon’s earnings were boosted by its stake in electric vehicle maker Rivian, which was worth $2.3 billion in the last quarter of 2022.

Amazon was expecting net sales of between $121 billion and $126 billion for the current quarter, which is mostly in line with Wall Street expectations. Shares fell about 4 percent in after-hours trading as investors digested the disparate fortunes of Amazon’s sprawling business units, though shares later regained ground.

“Amazon’s mixed fourth-quarter performance shows that e-commerce is resilient even in the face of inflation and the looming recession,” said Guru Hariharan of e-commerce management platform CommerceIQ.

“Shoppers are increasingly shopping online, although Amazon and the web in general are over-indexed to discretionary goods relative to all retail, where price-conscious shoppers may be inclined to pull back spending during tough times.”