Amazon shares are falling as the least profitable holiday quarter since 2014, resulting in the biggest annual loss on record.

On Thursday, Amazon.com Inc. reported its least profitable holiday quarter since 2014, resulting in the e-commerce giant’s biggest annual loss ever, which also disappointed Wall Street with its outlook amid worries about the growth of cloud computing.

Amazon AMZN,
+7.38%
reported holiday earnings of $278 million, or 3 cents per share, up from $1.39 per share a year ago. Revenue increased to $149.2 billion from $137.41 billion a year ago. Analysts on average were expecting earnings of 17 cents per share on sales of $145.71 billion, according to FactSet.

Shares fell more than 4% during after-hours immediately after the post-closing results were posted, up 7.4% to $112.91.

“In the short term, we face uncertainty in the economy, but we remain optimistic about Amazon’s long-term opportunities,” CEO Andy Jassi said in a statement.

Amazon was expected to post a full-year loss for the first time since 2014, but lower-than-expected holiday earnings actually sent Amazon to the company’s worst annual loss on record. For the year, Amazon posted a net loss of $2.7 billion and revenue of $513.98 billion, up from $469.82 billion a year ago, and the company’s first annual sales topped half a billion dollars. According to FactSet records, Amazon has never lost more than $1.4 billion in a single year since going public in 1997.

Amazon’s fourth-quarter earnings were again hampered by Rivian Automotive Inc.’s decline. Rivn,
+5.94%
shares that cost Amazon $2.3 billion in net income for the quarter. In addition, Amazon recognized many of the costs associated with recently announced layoffs and other cost cuts also in its fourth quarter results – the $2.7 billion impairment loss includes $640 million in termination benefits related to layoffs, and $720 million related to closure and physical deterioration. stores, chief financial officer Brian Olsawski told reporters.

Without these allegations, Amazon would have outperformed expectations, and acknowledging them in 2022 leaves a clean slate this year, when Amazon’s ability to return to high profitability will be the focus of Wall Street. The end result is likely to be Amazon Web Services or AWS, the cloud computing offering that has provided the bulk of Amazon’s earnings in recent years, including 2022. Last year, AWS posted an operating income of $22.84 billion while the rest of the business posted an operating loss of $10.59 billion.

But cloud computing growth has slowed as Microsoft Corp. MSFT,
+4.69%
showed in its results and outlook last week, and Olsavsky confirmed the slowdown on Thursday after AWS results fell short of expectations and suggested that revenue growth slowed into mid-teens and could stay there.

“Starting in the middle of the third quarter of 2022, we saw our annualized growth slow down as businesses of all sizes assessed ways to optimize their cloud spending in response to challenging macro conditions,” he said at the conference. Call with analysts. “As expected, these optimization efforts continued into the fourth quarter.”

Olsawski told reporters he expects “slower growth over the next few quarters” for AWS, and later told analysts that revenue growth in the first month of this year was in the middle of 2019. He noted that AWS’s revenue growth rate has slowed as customers have sought to reduce their cloud computing spending, and “we expect these optimization efforts to continue to hinder AWS growth for at least the next couple of quarters.” “.

Opinion: The cloud boom has reached its most tumultuous moment and is costing investors billions

Appearing on a teleconference for the first time since he was named CEO two years ago, Yassi, who led AWS before he was promoted to CEO replacing Jeff Bezos, said: “Is it good for our customers to find a way to be more cost-effective in an uncertain economy, our team will spend many cycles on this.”

“We’re the only ones that really break down our cloud numbers in a more specific way, so it’s always a little hard to answer your question about what we’re seeing,” Yassi told an analyst asking about the larger cloud industry, while referring to a competitor’s rejection. Microsoft to provide complete financial information about Azure. “But by our best estimates, when we look at year-over-year absolute dollar gains, we still have significantly more absolute dollar gains than anyone else we see in this space.”

In the fourth quarter, AWS generated operating income of $5.21 billion on revenue of $21.38 billion, with sales up over 20% and operating income slightly down. Analysts on average were expecting a profit of $5.73 billion on sales of $21.85 billion, according to FactSet.

Any slowdown in AWS will hurt Amazon’s bottom line as well as its overall revenue, and executives’ guidance for the first quarter shows less optimism than Wall Street expected. Amazon management calls for a break-even operating profit of up to $4 billion and revenue of $121 billion to $126 billion, while FactSet recorded an average analyst forecast of $4.04 billion in operating profit on sales of $125.09 billion.

Amazon’s e-commerce business struggled to grow amid the worst inflation in decades, and Olsawski told reporters that Amazon “has seen customers spend less on discretionary items… [while] continuing to spend on daily needs. Amazon recently announced that it will start charging groceries for Prime members, which could boost fresh produce revenue.

Read More: Amazon Fresh Will Start Charging Essential Customers Up To $10 For Grocery Delivery

Amazon’s domestic e-commerce business posted a $240 million operating loss on $93.36 billion in sales, after a $206 million loss on $82.36 billion in sales in the 2021 holiday quarter. margins in North America.

Amazon’s international efforts have been hit hard by falling sales and mounting losses as Olsawski said growth was slowing in the UK and other parts of Europe. Amazon posted a $2.23 billion operating loss on $34.46 billion in overseas revenue, after a $1.63 billion loss on $37.27 billion in sales a year ago.

The bright spot in Amazon’s report was a record quarter for its advertising business, which has grown rapidly in recent years, challenging GOOGL Alphabet Inc.
+7.28%
gug,
+7.27%
Google and other online advertising giants. Ads generated $11.56 billion in the holiday quarter, up almost 19% from $9.71 billion a year ago and beating analyst consensus.

Amazon shares have fallen over 25% in the past 12 months, but they have bounced back in 2023, up over 33% year-to-date. S&P 500 SPX index,
+1.47%
down 10.2% last year but up 7.3% since the calendar flipped to 2023.

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