business news in context, analysis with attitude

Amazon released its Q4 and 2022 financial results late yesterday …. and here are the numbers as stated by the company:

•  "Net sales increased 9% to $149.2 billion in the fourth quarter, compared with $137.4 billion in fourth quarter 2021. Excluding the $5.0 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 12% compared with fourth quarter 2021 … Net sales increased 9% to $514.0 billion in 2022, compared with $469.8 billion in 2021. Excluding the $15.5 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 13% compared with 2021."

•  "Net income decreased to $0.3 billion in the fourth quarter, or $0.03 per diluted share, compared with $14.3 billion, or $1.39 per diluted share, in fourth quarter 2021. All share and per share information for comparable prior year periods throughout this release have been retroactively adjusted to reflect the 20-for-1 stock split effected on May 27, 2022 … Net loss was $2.7 billion in 2022, or $0.27 per diluted share, compared with net income of $33.4 billion, or $3.24 per diluted share, in 2021."

Now, the analysis…

•  The Wall Street Journal writes that "the company’s e-commerce services and cloud-computing business moderated their pace of growth in the face of recession concerns that are denting consumer and enterprise spending."  The Journal notes that "Amazon is enduring one of its most difficult stretches in its history as it resets its business from the Covid boom period that, executives have said, caused it to expand aggressively. The company’s operating expenses in North America have outpaced sales during the first three quarters of 2022, though the company narrowed the gap in the fourth quarter."

The Journal points out that "Amazon has long relied on its cloud-computing arm, called Amazon Web Services, as its profit engine, especially when its e-commerce sales have disappointed. Amazon executives have said cloud-computing customers have looked to reduce their spending. AWS sales growth slowed to 20% in the most-recent quarter, the lowest growth rate since Amazon began to report the segment.

"The company’s cloud-computing rivals have been grappling with a similar slowdown. Microsoft Corp. in late January reported its slowest sales growth in more than six years as demand for its software and cloud services cooled."

•  From The Information:

"Amazon said revenue in its cloud unit rose 20% to $21.4 billion in the fourth quarter, the slowest growth since at least 2014 when it started breaking out Amazon Web Services results – and warned that the cloud business would likely remain sluggish through the coming year.

"Amazon’s chief financial officer Brian Olsavsky said on a call with reporters that AWS had seen 'continued slowness' so far in 2023 and that the company expects to 'to see some slower growth rates for the next few quarters'."

•  And from the New York Times:

"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.

"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'."

•  From Bloomberg:

" Inc. has paused expansion of its line of Amazon Fresh grocery stores as it evaluates how to make the chain stand out to shoppers, Chief Executive Officer Andy Jassy said on Thursday. 

"Amazon has owned Whole Foods Market since 2017, but in recent years much of its energy has been devoted to Amazon Fresh, a line of mainstream grocery stores that now number in the dozens after a rapid expansion during the pandemic. The effort to crack the grocery market has long been one of Amazon’s biggest bets — and struggles. 

"'We’re doing a fair bit of experimentation today with those stores to find the format that we thinks resonates with customers, is differentiated in some meaningful fashion, and where we like the economics,' Jassy said.

"He added that the company had decided not to expand physical Fresh stores until they complete that evaluation. 'We’re optimistic that we’re going to find that in 2023,' and expand more quickly, he said."

•  The Washington Post analysis has a provocative lead (albeit one we used here a few months ago):  "It looks like 'Day Two' is coming fast for Amazon."

The piece goes on:

"To be fair, nearly every tech and retail company has come into the new year licking a few wounds from 2022. The economy has ping ponged its way to a recovery that was fueled by stimulus-rich consumers, who have since slowed spending as their checking accounts start to shrink again. Retailers have scrambled to get rid of excess inventory that was no longer in demand like air fryers and yoga pants, eating into margins. 

"Amazon lost money for a fifth straight quarter in its north American business, which includes its retail offerings. Right-sizing the business is critical for Amazon as rivals like Walmart Inc. close the gap with bigger online investments and better integration between their digital and brick-and-mortar storefronts. The company also faces growing competition from social media platforms like ByteDance Ltd.’s TikTok, which is luring away shopping search traffic. 

"Amazon has dug itself out of deep holes before. After taking a $170 million inventory charge for the Fire phone in 2014, it closed some of its less profitable businesses such as travel booking site Amazon Destinations, and gift and loyalty card app Amazon Wallet, while ramping up revenue through its cloud division Amazon Web Services and the annual Prime Day sales event."

And, the Post writes:

"Grocery is one area where Amazon has a chance to grow sales and market share, and catch up to Walmart. It’s yet to take full advantage of its Whole Foods footprint aside from extending discounts on its Prime members service to in-store shoppers and delivering online orders for a fee. The grocery business was a 'really important strategic area,' Jassy said. 'We’re building a pretty broad grocery network across online and physical and you’re going to see us continue to work on it.'

"Whole Foods and its Amazon Fresh stores, which use touchless and cashier-less checkout technology, target a high-income, younger shopper and are easy places to grocery shop. Amazon Fresh stores have added appeal among techie and nerdy types with full wallets. The challenge is that even these high-income shoppers are being pinched by inflation with more consumers earning in excess of $100,000 a year reporting they are living paycheck-to-paycheck. Walmart told investors last year that it’s seeing more shoppers in that income bracket walking into its stores."

KC's View:

Amazon's volume in 2019 was less than half what it was 2022, and that volume, at least, continues to grow, albeit at a slower pace than in the past.  So before people start burying the company and dismissing its value proposition, it is important to keep that in mind.  It also is important to remember that whatever its problems, and the company certainly has gone through cycles, Amazon has set the agenda for how innovation and customer expectations for much of the past two decades.

That said, Amazon certainly is dealing with cost issues, with management apparently trying to just keep its expenses even as sales grow.

The New York Times notes that this is becoming a familiar narrative for almost every tech company, and that it "is an abrupt turn for an industry that became famous for its big salaries, extravagant offices and lavish perks, from free shuttle buses to free laundry services for employees. But as a boom that lasted 15 years comes to an end, shrinking profits are making tech executives rethink what they believed were important tools in an industrywide competition to hoard tech talent."

And, Amazon has competition issues, as companies like Walmart and Target continue to make savvy investments in technology and customer service that they feel will differentiate them.

(BTW … I still think that Amazon's physical stores are one great retail executive away from being able to fix their problems.  Again, I tender the offer … if they want some idea, I'm happy to share them.)

I do think the company has to be concerned that it may be losing control of its narrative.

Raising prices, closing stores, over-promising and under-delivering, disappointing customers, dealing with federal probes, fighting unionization movements … Amazon seems to be doing battle on so many fronts, virtually every day.  It used to occupy rarefied air in the American psyche, but that seems to be shifting.  And Amazon has to find a way to regain control of the narrative, to be its best self as opposed to being the company that in some ways it seems to have become.

That said … yesterday all my Subscribe & Save items showed up at my front door, right on time.  A bunch of boxes, holding things like paper towels, toilet paper, laundry detergent, soap - all items that I used to buy at the supermarket but for which the store offers absolutely no advantage.  I have some two dozen items on Subscribe & Save, all coming at varying intervals, and I can say that it is a service that has made a real difference in how we shop.  It gives us time back in our lives.

Seems to me that Amazon has to get back to its core mission of being resolutely focused on serving customer needs and empowering aspirations.  It really isn't Jassy's fault that when he talks about "maniacally focused on the customer experience," he doesn't really sound authentic.  He is, after all, charged with an amazingly difficult job with challenges on a multitude of fronts.

In this moment, though, Amazon has to get its story straight.