Amazon posted its first annual net loss since 2014 in what has been an atypical year for the e-commerce giant, which has spent more of its energy figuring out where to cut costs, whether it be laying off 18,000 employees, reshuffling its industrial real estate portfolio, exiting stores with low-growth potential and even shutting down some of its more experimental divisions.
But despite all the headwinds that originated from perpetual recession fears and an ensuing decline in consumer spending, the tech titan endured in its fourth quarter, seeing sales increase 9 percent to $149.2 billion on net income of $278 million, or 3 cents per diluted share.
In a Nutshell: Amazon is experiencing a comedown of sorts after its massive growth and hiring stretch that was the story of the Covid-19 pandemic, when e-commerce spending accelerated at an unprecedented rate.
CEO Andy Jassy broke tradition by sitting on the company’s earnings call and answering analysts’ Q&A, stressing the cost cuts as the number one priority for Amazon in 2022, particularly in North America.
“It’s important to remember that over the last few years, we’ve taken a fulfillment center footprint that we built over 25 years and doubled it in just a couple of years. And then we, at the same time, built out a transportation network for last mile—roughly the size of UPS—in a couple of years,” Jassy said. “When you do both of those things to meet the huge surge in demand—just to get those functional—it took everything we had. There’s a lot to figure out how to optimize and how to make more efficient and more productive. To figure out how to be really efficient across all those links, and have them be highly utilized, and to get the flows in those facilities work in the right way takes time.”
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During the call, chief financial officer Brian Olsavsky outlined that the company’s cost structure has drastically changed from pre-pandemic times due to the fulfillment network expansion.
“Essentially, we’re now trying to again regain our cost structure that we’ve had in the past, balance and get more efficient on the assets we’ve added in the last two, three years now, and also look at all the investment areas that we’re working on to drive growth. We’re continuing to look at them where we need to make mid-course corrections, where we need to change things up,” Olsavsky said. “We expect that a lot of the improvement will be in North America operations costs. We made good headway in 2022, we always want to make more and we’re gonna be working on this definitely through 2023 and beyond. But we expect to make big improvements in 2023.”
Olsavsky also gave his insight on the changing spending habits the Seattle online company is seeing with its own consumers.
“Customers remain cautious about their spending behavior. We saw them spend less on discretionary categories and shift to lower-priced items in value brands and categories like electronics,” Olsavsky said. “We also saw them continue to spend on everyday essentials such as consumables, beauty and soft lines.”
The 18,000 roles that were eliminated primarily impacted the stores and device businesses, as well as Amazon’s human resources teams. As a result, the company recorded estimated severance costs of $640 million.
For the first quarter, Amazon anticipates net sales to be between $121 billion and $126 billion, which would be a 4 percent to 8 percent bump compared with first quarter 2022. Analysts were expecting sales to come in at $125.1 billion, according to estimates from Refinitiv.
Operating income is expected to be between $0 and $4 billion, compared with $3.7 billion in first quarter 2022.
Net Sales: Net sales at Amazon increased 9 percent to $149.2 billion in the fourth quarter, compared with $137.4 billion in the 2021 period. Excluding the $5 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 12 percent.
North America segment sales increased 13 percent year-over-year to $93.4 billion, or 14 percent excluding foreign exchange rate changes.
International segment sales decreased 8 percent to $34.5 billion, or 5 percent when not accounting for the exchange rate.
AWS segment sales increased 20 percent year-over-year to $21.4 billion.
Online stores, the largest segment at Amazon, declined 2 percent to $64.5 billion from $66.1 billion in the year-ago period.
For the full-year, net sales jumped 9 percent to $514 billion in 2022, compared with $469.8 billion in 2021. Excluding the $15.5 billion impact from the foreign exchange rates throughout the year, net sales increased 13 percent compared with 2021.
AWS sales for 2022 were $80.1 billion, a 29 percent improvement over the prior-year quarter.
Net Earnings: Net income totaled $278 million in the fourth quarter, or 3 cents per diluted share, down from $14.3 billion, or $1.39 per diluted share, in the 2021 quarter.
The net income totals include a pre-tax valuation loss of $2.3 billion included in a non-operating expense from the company’s investment in Rivian Automotive.
Operating income decreased to $2.7 billion in the period, compared with $3.5 billion in year-ago period. This includes approximately $2.7 billion of charges for changes in estimates related to self-insurance liabilities, impairments of property and equipment and operating leases related to Amazon Fresh and Amazon Go stores, and estimated severance costs. These charges primarily impacted the North America segment.
For the full year, net loss was $2.7 billion in 2022, or 27 cents per diluted share, compared with net income of $33.4 billion, or $3.24 per diluted share, in 2021. The net loss includes a pre-tax valuation loss of $12.7 billion from the Rivian investment.
Operating income dipped to $12.2 billion in 2022, compared with $24.9 billion in 2021.
CEO’s Take: In a statement, Jassy said Amazon’s retail business exceeded expectations, noting that the e-commerce giant is “encouraged” by progress made in the unit despite reduced costs—a reference to both the layoffs within the business alongside the corporate hiring freeze implemented in November.
“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” Jassy said. “The vast majority of total market segment share in both global retail and IT still reside in physical stores and on-premises data centers; and as this equation steadily flips, we believe our leading customer experiences in these areas along with the results of our continued hard work and invention to improve every day, will lead to significant growth in the coming years.”