Amazon on Thursday reported almost no profit in the latest quarter, with unexpected weakness in its big cloud computing businesses helping to slow overall sales growth to one of its lowest levels in decades.
The company reported $149.2 billion in sales in the three months ending in December, which included the vital holiday shopping season, up 9 percent from a year earlier.
A year ago, Amazon had its most profitable quarter ever, with $14.3 billion in net income. But the downshifting economy and Amazon’s own attempt to roll back expansion plans cut into its earnings this year, hacking profit back to $278 million. The reduced profit included $2.3 billion in lower valuation for its investment in the electric-truck maker Rivian.
The company indicated the slowing growth and tight margins would continue in the first three months of this year.
While the overall sales surpassed Wall Street expectations, as compiled by FactSet, the overall profit and the performance of the cloud computing business fell short, sending shares of the stock down about 4 percent in aftermarket trading.
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Economists have been surprised by recent strength in the labor market, as the Federal Reserve tries to engineer a slowdown and tame inflation.
Andy Jassy, the company’s chief executive, has spent the past year pushing the company to trim costs. Amazon has been working through plans to lay off 18,000 corporate and tech workers; it added fees for grocery deliveries that had once been free; and cut back from a breakneck warehouse expansion that left the company with too much space.
“Being maniacally focused on the customer experience is alway going to be a top priority for us,” Mr. Jassy said in a call with investors. “We are working really hard to streamline our costs and trying to do so at the same time that we don’t give up on the long-term, strategic investments that we believe can meaningfully change broad customer experience, and change Amazon.”
John Blackledge, an analyst at Cowen & Company, estimated in December that if investors stripped out the profitable cloud computing and advertising businesses, the rest of Amazon, which includes its retail operation, studios, devices and other consumer efforts, lost more than $25 billion in 2022.
Investors closely watch how the company’s cloud computing division is faring, since it has been such a big profit generator. Last week Microsoft, Amazon’s closest competitor for cloud computing, warned that new business slowed in December and was expected to continue to slow in the current quarter as the fragile economy has led business customers to be cautious about spending.
Amazon’s cloud business grew 20 percent to $21.4 billion, its slowest growth on record, and the segment’s operating profit fell slightly, to $5.2 billion.
A key selling point for cloud computing is the ability to quickly reduce costs as demand or needs change, and “we are going to help our customers find a way to spend less money” and run their technology more efficiently, Mr. Jassy said. Business customers are acting cautiously, he said, adding, “You see it with virtually every enterprise, and we’re being very thoughtful about streamlining our costs as well.”
Brian Olsavsky, the company’s finance chief, said on a call with reporters that customers were still signing deals, but “we do expect to see some slower growth rates for the next few quarters.”
Consumers’ struggles with inflation and rising interest rates showed up in Amazon’s retail business. The profitable advertising unit saw sales grow 19 percent to $11.6 billion. But Amazon’s core e-commerce business of selling products directly to consumers was down 2 percent to $64.5 billion. The services it offers to third-party sellers, which provide 59 percent of products sold, was up 20 percent to $36.3 billion.
Mr. Olsavsky said customers spent less on discretionary products and favored lower-priced items and value brands. He said that the company was happy with how the quarter went, given the overall economy. “We’re just cautiously optimistic as we move into 2023 because we know that some of that is holiday demand that people won’t cut back on,” he said.
Mr. Olsavsky said some of the efforts over the past year to run its fulfillment and delivery operations more efficiently have been showing results, with the company more likely to have “right labor, in the right place, at the right time” to meet consumer demand.
Some cost-cutting efforts have short-term expenses, including $640 million in severance costs for corporate and tech workers and $720 million to reduce where it operates grocery stores and Amazon Go markets.
The company is also dealing with finding growth when it is already so large. Its Prime membership program may have reached a saturation point in the United States, the company’s most important market, according to Consumer Intelligence Research Partners. “Prime membership has essentially stopped growing in the U.S.,” the researchers wrote last month, estimating 168 million people in the United States have a membership. Subscription revenue, seen by investors as having high profit margins, was up 13 percent in the quarter.
The company’s hiring from the pandemic, when it more than doubled its work force, ground to a halt. Between layoffs and unusually high turnover at its warehouses, it ended the year with 1.54 million workers, about 4 percent fewer than a year earlier.
