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.
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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.
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