Amazon’s prospects are disappointing as customer budgets remain tight

Shares fell 5 percent in after-hours trading, erasing most of their 7 percent gain before the close on Thursday.

Rarely appearing at Amazon’s quarterly call with financial analysts, Chief Executive Andy Jassy said “virtually every company” is cautious about cloud and other costs amid economic uncertainty.

“We’re going to help our customers find a way to spend less,” he said. “We’re trying to build a series of business relationships that will outlast us all.”

In view of high inflation and recession fears, Jassy has also initiated extensive cost reductions within Amazon.

Last month, the online retailer announced that more than 18,000 employees, particularly in retail and human resources, would lose their jobs. A $640 million severance payment was booked in the fourth quarter, CFO Brian Olsavsky told reporters.

Amazon has also reduced or discontinued entire services such as its virtual basic service offer for employers. Another $720 million was billed by closing or impairing the assets of some grocery stores, among other things, as it believed it had yet to find the right formula for its long-standing supermarket bet.

“We won’t be expanding physical Fresh stores until we have that equation, with differentiation and commercial value that we like, but we’re optimistic we’ll find that in 2023,” Jassy said.

Despite these cost cuts, Amazon is forecasting operating income of between $0 billion and $4 billion this quarter, compared with $3.7 billion for the same period last year and $4.04 billion that analysts had been expecting. according to research firm FactSet.

Olsavsky attributed this to slowing sales growth in the cloud, as well as brands slower to pour money into Amazon ads now that the holiday shopping season is over. Retail demand is another factor.

“We remain nervous as everyone else is concerned with consumer spending and … how people are going to prioritize their budgets going forward,” he said.

An October sale to encourage early Christmas shopping on Amazon has contributed to retail sales to some extent.

The company’s total net sales were $149.2 billion in the fourth quarter, compared to analysts’ expectations of $145.4 billion, according to Refinitiv’s IBES data.

However, consumer spending shifted more to tokens in some categories and a larger percentage of sales to housewares, Olsavsky said.

Demand in Europe and the UK was also hit by high inflation and the war in Ukraine, which slowed international growth rates, he said.

Amazon, meanwhile, has been looking for new revenue. The company plans to add certain grocery delivery fees to US Prime members in addition to recent price increases for participating in the loyalty program. it created an add-on subscription for generics to attract business as well.

Still, his outlook is particularly tied to the fate of his cloud computing division.

Insider Intelligence analyst Andrew Lipsman called the slower growth of cloud and advertising “a drag on future earnings.”

Technology industry executives, including competitor Microsoft Corp, have said economic uncertainty has prompted companies to reconsider how much they are willing to spend on the cloud.

While AWS helps customers navigate such terrain, it still has a healthy flow of business and future commitments from customers that make the company optimistic, said Amazon CFO Olsavsky.

However, “weak spots” in the cloud included financial services, as mortgage volumes have declined and there has been less cryptocurrency trading, he said.

For now, the division fell short of estimates of more than $22 billion in fourth-quarter cloud sales. They rose 20 percent to $21.4 billion.