Although sales at Amazon continue to grow, alarms are going off behind the scenes. There were barely any profits in the fourth quarter, key cloud revenues are slowing and Amazon admits it is not yet successful in food.
Profits evaporate, growth slows
Amazon’s latest quarter fell short of expectations: even though revenue rose 9 % to 149.2 billion dollars (135 billion euros), that was the slowest growth in years. Moreover, almost no profit remains: net profit fell to 278 million dollars (250 million euros), compared to a whopping 14.3 billion dollars a year earlier. Amazon experienced its most profitable quarter ever last year, but those days seem to be over.
Big culprit was electric car brand Rivian (losing 2.3 billion dollars), but Amazon’s cloud computing business was disappointing as well. Amazon gets the bulk of its profit and margin in this sector, but companies are currently investing less in storage. The company indicated that reduced growth and tight margins would continue in the first three months of this year.
Amazon’s retail business is not faring too much better, either. Its sales fell 2 % to 64.5 billion dollars (60 billion euros). However, services to sales partners – which realise more than half of platform sales – were up 20 %. CFO Brian Olsavsky sees that people are spending less and prefer cheaper products.
Supermarkets in the fridge
In the supermarket business, CEO Andy Jassy had to admit that although Amazon is already making substantial sales with packaged food and other groceries, it has yet to gain significant market share in the fresh food category. He is therefore pausing the expansion of Amazon Fresh supermarkets and cashless Amazon Go shops “until the right recipe for success is found”.
Before scaling up further, Jassy says Amazon needs a distinctive retail concept that performs well financially. This can only mean that he feels like at the moment, there is no such formula. However, he hopes to crack the code before the end of the year, while simultaneously adding that he believes the future of food is both online and offline. The Whole Foods chain, for instance, is doing well.
Still, it will be necessary to close a number of supermarkets, for which 720 million dollars in costs were already scheduled last quarter. Amazon had already closed all physical non-food shops, such as its bookstores, while laying off 18,000 employees by the end of 2022. Recently, Prime members also had to pay delivery fees for their grocery deliveries.
Consequently, the entire financial year ended below zero, losing 2.7 billion (2.5 billion euros) on sales of 514 billion (470 billion euros). For the first quarter of this year, Amazon is counting on sales growth of between 4 and 8 %, which is less than expected. The company also remains very cautious about profits, which would be between zero and four billion dollars.