Amazon delivered a mixed bag in Q4

Article by Zak Stambor | Feb 2, 2023

The news: Amazon’s Q4 results were a mixed bag as its revenues beat expectations despite a decline in its ecommerce sales.

The company’s revenues grew 9% year-over-year (YoY) in Q4 to $149.2 billion. Refinitiv’s estimates expected the retail giant’s revenues to be $145.42, and Amazon’s guidance had been between $140.0 billion and $148.0 billion.
But its ecommerce revenues fell 2% to $64.53 billion from $66.08 billion a year earlier.
One clear bright spot was the company’s lucrative advertising business, which grew 19% to $11.56 billion, outpacing StreetAccount’s projection of $11.38 billion.

A warning sign: The decline in ecommerce revenues for the fourth time in the past five quarters is a clear warning sign for Amazon—particularly after the retailer attempted to goose sales via the launch of its Prime Early Access Sale.

That said, there were some good signs. The company’s third-party seller services revenues grew 20% YoY to $36.34 billion in Q4, and subscription services—which is mainly subscriptions to its Prime membership—grew 19% to $11.55 billion during the quarter.

Getting its costs in check: Amazon has been on an ongoing push under CEO Andy Jassy to focus squarely on its core businesses—like ecommerce, grocery, advertising, and AWS—and aggressively cut costs wherever possible.

That resulted in several large-scale cost-cutting measures such as laying off roughly 18,000 staff, slowing the opening of new warehouses, abandoning some facilities, and selling a Bay Area office complex that it had planned to convert to a logistics facility.
It also made lower-profile changes including beginning to charge US Prime members for Amazon Fresh grocery orders under $150 and sunsetting its charity program, AmazonSmile.

Looking for growth: At the same time, Amazon continues to look for new growth opportunities.

It recently expanded the availability of its Buy with Prime offering, which enables retailers to use Amazon’s fulfillment and payments services.
It has also sought to better align its businesses. For example, Amazon-owned Zappos recently began offering label-free, box-free returns at Amazon-owned Whole Foods Markets nationwide.
Looking abroad, it launched a partnership with Bengaluru-based cargo airline Quikjet to launch its Amazon Air air freight service in India.

The big takeaway: Amazon is in the midst of its most difficult stretch in decades.

While it is taking steps to correct its course, turning around such a large company takes time. That’s evident in its Q1 guidance in which it expects net sales to rise between 4% and 8% and operating income to be between $0 and $4.0 billion.
That said, there were some positive signs, including the continued strength of its retail media business, which we estimate accounted for nearly 78% of US retail media ad spending last year.