Amazon's outlook disappoints as customer budgets stay tight

  • In US
  • 2023-02-02 21:04:37Z
  • By Reuters

By Jeffrey Dastin and Tiyashi Datta

(Reuters) Inc on Thursday said it may not make a profit in the current quarter as savings from layoffs fail to make up for the financial impact of consumers and cloud customers clamping down on spending.

And while Amazon's holiday revenue beat Wall Street's expectations, sales growth from its lucrative cloud-computing division slowed during the fourth quarter.

Shares fell 5% in after-hours trade, erasing their 7% gain before the market's close Thursday.

Amazon Chief Financial Officer Brian Olsavsky told reporters that the company expects slower cloud growth rates for the next few quarters as it worked with customers to optimize costs.

Olsavsky also said the company remains nervous about consumer spending and how people will prioritize budgets moving forward.

Facing high inflation and an uncertain economy, CEO Andy Jassy has aimed to slash costs across Amazon's vast array of businesses.

Last month, he announced more than 18,000 employees particularly in its commerce and human resources divisions would lose their jobs. Amazon likewise has scaled back or shut down entire services like its virtual primary care offering for employers.

At the same time, Amazon is seeking new revenue in the face of higher gas and consumer prices that have discouraged shoppers from splurging online, especially in Europe. The company plans to charge certain grocery delivery fees for U.S. Prime members, on top of recent price hikes to join the loyalty program; it has created an add-on generic-drug subscription to attract business as well.

Despite this, Amazon forecast it would earn between $0 and $4 billion in operating income this quarter, compared with $3.7 billion in the same period a year prior and $4.04 billion analysts were expecting, according to research firm FactSet.

In a press release, Jassy said the company was making progress on cost cutting.

"In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon," he said.

Amazon's outlook is in particular tied to the fortunes of its cloud-computing division. Long a major source of profit, Amazon Web Services has seen sales growth slow down, and industry executives, including at rival Microsoft Corp have said economic uncertainty has prompted enterprises to rethink how much they're willing to spend on cloud.

The division fell short of estimates of more than $22 billion in fourth-quarter cloud sales, increasing them 20% to $21.4 billion.

An October sale to encourage early holiday shopping on Amazon helped with retail revenue, to a point. The company's total net sales were $149.20 billion in the fourth quarter, compared with analysts' expectations of $145.42 billion, according to IBES data from Refinitiv.

(Reporting by Jeffrey Dastin in San Francisco and Tiyashi Datta in Bengaluru; Editing by Anil D'Silva and Aurora Ellis)


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