Amazon Stock Falls on Mixed Earnings Report and Weak Forecast

Amazon CEO Andy Jassy said that “most enterprises right now are acting cautiously,” and looking for ways to “cost optimize.”

David Ryder/Bloomberg

Enjoy Gaes Shares of Amazon AMZN +7.38% . com fell in late trading Thursday after the company posted mixed results for the fourth quarter, reflecting the ongoing pressures from a softening economy.

The company reported better-than-expected fourth-quarter sales growth, but weaker-than-anticipated profits, due largely to a loss on the company’s stake in electric-truck maker Rivian Automotive RIVN +5.94%  (ticker: RIVN)

Revenue at the company’s closely watched Amazon Web Services unit was a little shy of expectations. The company’s revenue outlook for the first quarter, meanwhile, was well below consensus estimates.

Amazon (AMZN) was off about 3.5% in after hours trading following the report.

For the quarter, Amazon posted sales of $149.2 billion, up 9%, and above both the company’s guidance range of $140 billion and $148 billion and the Wall Street consensus forecast of $145.9 billion. The company said that excluding $5 billion of unfavorable foreign exchange rates, growth would have been 12%.

Operating income was $2.7 billion, right in line with Wall Street estimates. Net income was $300 million, or 3 cents a share, including a $2.3 billion pretax noncash loss on the value of the company’s stake in Rivian.

For the full year, sales were $514 billion, up 9%, or 13% adjusting for currency. For the year, Amazon lost $2.7 billion, including a $12.7 billion lose related to its position in Rivian shares.

Amazon Web Services had revenue of $21.4 billion in the fourth quarter, up 20%, falling short of the Wall Street consensus view for $21.8 billion, and decelerating from 27% growth in the September quarter. The softness in the company’s cloud revenue is consistent with recently weakening growth at Microsoft MSFT +4.69%  ‘s (MSFT) Azure cloud business, as companies tighten then belts in the face of a more difficult economic climate.

Amazon CEO Andy Jassy made a surprise appearance on Amazon’s earnings call Thursday afternoon, noting that this marked the end of his first full year in the role. Among other topics, he discussed the current business conditions at AWS, which he helped build from scratch before succeeding founder Jeff Bezos in the top job.

Jassy said that “most enterprises right now are acting cautiously,” and looking for ways to “cost optimize.” He said AWS will continue to help customers find ways to spend less money on cloud services. “We are trying to build a set of relationships that will outlast all of us,” he said, rather than focusing only on short-term financial performance.

But he also said that Amazon believes that 90% to 95% of all IT spending remains on premises, and that, over the next 10 to 15 years, most of that will shift to the cloud, leaving substantial growth opportunity for AWS.

Fourth-quarter online store sales were $64.5 billion, down 2%, and slightly worse than analysts had expected. Third-party seller services revenue were $36.3 million, up 20%. Physical stores revenue was $5 billion, up 6%, while subscription services revenue was $9.2 billion, up 13%. Advertising revenue was $11.6 billion, up 19%, above the Wall Street forecast for $11.4 billion.

For the first quarter, Amazon sees revenue ranging from $121 billion to $126 billion, up between 4% and 8%, which is short of the Wall Street consensus for $139.2 billion. Amazon sees operating income for the quarter of between zero and $4 billion; Wall Street has been projecting $4.2 billion.

“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” Jassy said in a statement. He added that the company is “encouraged by the continued progress we’re making in reducing our cost to serve in the operations part of our stores business.”

In early January, Amazon announced plans to eliminate just over 18,000 jobs, as it pushes to reduce costs in a weaker macroeconomic environment.

“These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles,” CEO Andy Jassy said last month when announcing the cuts to the Amazon staff.

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