Tuesday, March 21, 2023
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Amazon’s slowing cloud computing sales are expected to continue

(Bloomberg) — Amazon.com Inc. dampened a recent investor feel-good period by reporting that consumer demand remains weak and sales in its lucrative cloud-computing division will continue to slow throughout the year. Shares fell in extended trading.

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The company’s core business, selling goods in North America, lost money for the fifth straight quarter despite job cuts and a pause in opening new warehouses that began last year. Amazon Web Services is losing its luster with slowing growth and shrinking profit margins after a stellar run during the pandemic.

“We expect slower growth rates over the next few quarters,” Chief Financial Officer Brian Olsavsky said Thursday when speaking to reporters about the cloud market. He also said that inflation-stricken shoppers are turning to cheaper brands and that consumer sentiment in Europe and Asia appears to have been hit more than in the US.

It’s a worrying forecast given that AWS has long generated most of the company’s profits. Amazon’s unit, which leases computing power and storage, generated revenue of $21.4 billion, up 20% year over year — its fourth straight period of declining growth after a 40% jump in the final quarter of 2021 The unit’s performance fell just short of estimates, following disappointing results from competitor Microsoft Corp last week. for its cloud division.

“The expected slowdown at AWS has been even worse than expected and means Amazon may not have as much reliance on these business units’ operating profits in the coming quarters,” said Andrew Lipsman, analyst at Insider Intelligence.

Chief Executive Officer Andy Jassy cuts costs after Amazon was burdened with too many warehouses and employees by rapid hiring and expansion during the pandemic. The company has slowed the opening of new buildings, abandoned some facilities, and started cutting experimental teams. The Seattle-based company last month began a new round of job cuts that will ultimately involve 18,000 employees.

“I think the #1 priority I spend time with the team on is probably reducing our costs,” Jassy said on a conference call following the results.

Amazon employed 1.54 million full- and part-time employees at the end of the reporting period ended Dec. 31 — a 4% decrease from a year earlier.

According to data compiled by Bloomberg, revenue rose 9% to $149.2 billion in the fourth quarter, beating analysts’ median estimate of $145.8 billion. Revenue will be $121 billion to $126 billion in the period through March, Amazon said in a statement. Analysts forecast $125.5 billion on average.

However, online store sales fell 2% to $64.5 billion, missing analyst estimates. It was the fourth of five quarters that sales at Amazon’s core business declined.

Shares fell about 4% in extended trading after closing at $112.91 in New York. The stock is up 34% so far this year after losing half of its value in 2022 — the company’s worst performance in more than a decade.

While Amazon’s holiday earnings were better than forecast, the stock’s reaction showed investors were expecting “blowout results” and were disappointed, said Brendan Witcher, an analyst at Forrester Research Inc.

“With Amazon stock up 30% over the past month, expectations were already high,” he said.

–Assisted by Matt Day.

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