Welcome to HL's reimagined News, Insights and Research experience. Find out more

Share research

Amazon - sales beat but profits lag

Net sales rose 12% to $149.2bn in the fourth quarter, which was better than expected.

No recommendation - No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Prices delayed by at least 15 minutes

This article is more than 1 year old

It was correct at the time of publishing. Our views and any references to tax, investment, and pension rules may have changed since then.

Net sales rose 12% to $149.2bn in the fourth quarter, which was better than expected. Growth was entirely driven by North America and Amazon Web Services (AWS), while International sales fell 5%. Amazon said it had a record-breaking holiday season in the US.

Operating profit fell to $2.7bn from $3.5bn a year ago. The decrease includes a $2.7bn charge relating to the group's restructuring efforts, including severance costs. AWS was the only division to generate profit, which came in at $5.2bn.

The group expects net sales to be between $121.0bn - $126.0bn in the first quarter of 2023, with operating profit between $0 - $4.0bn.

Amazon had net debt of $70.1bn, including lease liabilities, at the end of the period.

The shares fell 5.1% in after-hours trading.

View the latest Amazon share price and how to deal

Our view

Amazon went too big too soon on expansion plans in its core retail business. It's had to put the brakes on, and then some, to try and get costs back under control. Volumes aren't there to greet the new infrastructure as recession fears mount and consumers pull back on spending. All in, profit growth is proving elusive.

We're cautiously optimistic about a reversal in trends, especially as the inflation landscape begins to look a bit more manageable when looking towards next year. But looking to the nearer-term, Amazon is likely going to struggle to get retail volumes where they need to be.

That means the onus is on other areas to help pick up the slack.

Longer term, its services we're excited about, which includes things like Prime, AWS (more on that later), and the group's advertising arm. It's been impressive to see the latter making progress. Troves of data footprints and millions of customers ready and willing to click buy are a marketer's dream.

For now at least, though, AWS's broad shoulders are essentially carrying the group's profit line, it being the only profitable business segment. Relatively speaking, there's some weakness in this area, which suggests enterprises may be considering where to allocate capital. Upgrading cloud tech given such an uncertain backdrop could be something that gets kicked down the road. Ultimately though, this is a sturdy area of the business, helping to support Amazon while its International retail struggles.

The other area to keep in mind is labour costs. Even though Amazon is shrinking the workforce, it often finds itself in embroiled in workers' - rights disputes. This could lead to more frequent pay increases for its staff, which adds extra pressure to profits as well as attention from socially-minded investors.

The trove of challenges from a weaker consumer to costs running high have weighed on analyst's forecasted earnings. That's kept the valuation, on a price to earnings basis, well below the longer-term average.

That said, the group still trades at over 60 times expected earnings. We think that's largely a reflection of the prospects for AWS, and there's no denying that, plus other services areas, have huge growth potential. But with the e-commerce arm under serious pressure, there could be rocky times ahead.

Amazon key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

Latest from Share research
Weekly newsletter
Sign up for editors choice. The week's top investment stories, free in your inbox every Saturday.
Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

Our content review process
The aim of Hargreaves Lansdown's financial content review process is to ensure accuracy, clarity, and comprehensiveness of all published materials
Article history
Published: 3rd February 2023