Amazon on Thursday reported barely a profit in its latest quarter, with unexpected weakness in its big cloud computing business slowing overall sales growth to one of its lowest levels in decades.
The company reported sales of $149.2 billion in the three months through December, which included the key holiday shopping season, up 9% from a year earlier.
A year ago, Amazon had its most profitable quarter ever, with net income of $14.3 billion. But a slowing economy and Amazon’s own attempts to scale back expansion plans have dented its earnings this year, pulling profit back to $278 million.
Slower growth and thin margins will continue in the first three months of the year, the company said.
While overall sales topped Wall Street expectations, overall profits and results from the cloud computing business, as compiled by FactSet, fell short, sending the stock down as much as 6% in aftermarket trading.
U.S. Employment Status
Economists have been surprised by the recent strength in the labor market as the Federal Reserve tries to rein in a slowing economy and curb inflation.
Chief Executive Andy Jassy has been pushing the company to cut costs for the past year. Amazon has been implementing plans to lay off 18,000 business and tech workers; it has increased fees for grocery delivery, which was once free; and it has cut back on rapid warehouse expansions that left the company with too much room.
“In the short term, we face an uncertain economy, but we remain very optimistic about Amazon’s long-term opportunity,” Mr. Jassy said in a statement.
Cowen & Company analyst John Blackledge estimated in December that if investors strip out the profitable cloud computing and advertising businesses, the rest of Amazon, which includes its retail business, studios, devices and other consumer businesses , will lose more than $25 billion in 2022.
Investors are closely watching the performance of the company’s cloud computing unit, which has been a huge profit generator. Last week, Microsoft, Amazon’s closest rival in cloud computing, warned that new business slowed in December and is expected to continue in the current quarter as a fragile economy keeps corporate customers cautious about spending.
Amazon’s cloud business grew 20% to $21.4 billion, the slowest growth rate on record, and the unit’s operating profit fell slightly to $5.2 billion.
Consumers’ struggle with inflation and rising interest rates is reflected in Amazon’s retail business. Profitable advertising sales rose 19 percent to $11.6 billion. But Amazon’s core e-commerce business, which sells products directly to consumers, fell 2% to $64.5 billion. Its services to third-party sellers, which provide 59% of products sold, rose 20% to $36.3 billion.
The company is still struggling to find growth at such a large scale. Its Prime membership program may have reached a saturation point in the U.S., the company’s most important market, according to Consumer Intelligence Research Partners. “Prime membership growth in the U.S. has largely stopped,” researchers wrote last month, estimating that 168 million people in the U.S. have memberships. Subscription revenue, which investors view as high-margin, rose 13% in the quarter.
The company was hiring because of the pandemic, when it more than doubled its headcount, but hiring has ground to a halt. The company ended the year with 1.54 million employees, down about 4% from a year earlier, due to layoffs and unusually high turnover at its warehouses.