ii view: latest Amazon results disappoint

Its been a year to forget for investors in this retailing giant, but can cost saving initiatives help it regain its sparkle? We assess prospects. 

Fourth-quarter results to 31 December 

• Net sales up by 9% to $149.2 billion (£122 billion) year-over-year
• Operating income of $2.7 billion ($2.2 billion), down from $3.5 billion 

Guidance:

• Expects Q1 sales of between $121 billion and $126 billion, giving year-over-year growth of 4% to 8%
• Expects operating income of $0 to $4 billion compared with $3.7 billion in Q1 2022

Chief executive Andy Jassy said: 

“We’re also encouraged by the continued progress we’re making in reducing our cost to serve in the operations part of our Stores business. In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon.”

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ii round-up:

Retailing tech titan Amazon (NASDAQ:AMZN) reported its slowest annual sales growth in its 20-plus years as a stock market listed company overnight. 

Full-year 2022 sales rose 9% year-over-year to $514 billion (£421 billion), with sales at its international division falling 8% to $118 billion (£97 billion) given currency movement headwinds. Growth at its cloud data storage business AWS slowed to 20% year-over-year in this latest quarter, down from 27.5% in the prior third quarter and missing Wall Street forecasts. 

Amazon shares fell by 5% in after-hours US trading having come into this latest announcement down by almost a fifth over the last year. Rival cloud data storage business and owner of Google Alphabet Inc Class A (NASDAQ:GOOGL) has fallen by a similar amount in that time, while selling site eBay Inc (NASDAQ:EBAY) is down close to a tenth. The tech heavy Nasdaq Composite index is down 12%. 

Fourth quarter Amazon sales rose 9% year-over-year to $149.2 billion compared with 15% in the previous quarter, although that exceeded analyst forecasts for nearer to $145 billion. 

Operating profit dropped to $2.7 billion from $3.5 billion in the fourth quarter of 2021, hit by charges including those for staff redundancies. Amazon customers, like consumers everywhere, have been battling a cost-of-living crisis and rising interest rates. 

In January, Amazon confirmed 18,000 job losses as it attempts to re-adjust following the boom in demand caused by the pandemic. 

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Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, expressing faith in management’s ability to drive efficiencies and profitability going forward. 

ii view:

Founded in 1994, Amazon today is focused on e-commerce, cloud computing, digital streaming, online advertising, and artificial intelligence. Cloud business AWS competes with the likes of Microsoft Corp (NASDAQ:MSFT) and International Business Machines Corp (NYSE:IBM). Its streaming business Prime leaves it toe to toe with Netflix Inc (NASDAQ:NFLX) and The Walt Disney Co (NYSE:DIS). Devices such as its Fire tablet offer competition to Apple Inc (NASDAQ:AAPL) tablets, while its advertising sales compete with the likes of Meta Platforms Inc Class A (NASDAQ:META) for corporate attention. 

For investors, the tough economic backdrop for consumers globally continues to overhang potential future spending. Some other investment during the pandemic is now being reined back, costs generally for businesses remain elevated, while the debate over appropriate technology valuations continues to rumble on.

More favourably, its core retail business is now accompanied by significant other operations, all of which enjoy wide geographical diversity. Initiatives to cull costs and improve efficiency are being pushed, while its previous increase in Prime membership fees should be helping to counter elevated costs. 

For now, and while some caution remains sensible, further long-term growth for this diverse tech titan and global retailing mammoth looks highly likely.

Positives

• Dominant position in online retailing
• The Amazon Web Services (AWS) business is now a major global player

Negatives

• The threat of increased regulation across many of its markets
• Currency movements can hinder performance

The average rating of stock market analysts:

Buy