What happened
Shares of Amazon.com (AMZN -0.36%) fell 8.4% on Friday after the online retail colossus warned of a downturn in its most profitable business.
So what
Amazon's net sales grew by 9% year over year to $149.2 billion in the fourth quarter. Gains in the e-commerce giant's North American segment more than offset declines in its international operations.
Yet growth in the company's key Amazon Web Services (AWS) business slowed markedly. AWS's revenue rose 20% to $21.4 billion. That's down from 27% growth in the third quarter and 40% in the year-ago period.
"Starting back in the middle of the third quarter of 2022, we saw our year-over-year growth rates slow as enterprises of all sizes evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions," Chief Financial Officer Brian Olsavsky said during a conference call with analysts. "As expected, these optimization efforts continued into the fourth quarter."
To better withstand the downturn, Amazon is slashing expenses. The company said in January that it would reduce its workforce by more than 18,000 employees. Amazon also shuttered many of its brick-and-mortar stores and pared back the expansion of its massive e-commerce fulfillment network.
Still, Amazon's operating income fell more than 20% to $2.7 billion. Severance costs and impairment charges contributed to the decline.
Now what
Olsavsky said Amazon would work with its cloud customers to help them reduce costs. "As we look ahead, we expect these optimization efforts will continue to be a headwind to AWS growth in at least the next couple of quarters," Olsavsky said. "So far in the first month of the year, AWS year-over-year revenue growth is in the mid-teens."
With AWS's pace of expansion slowing, Amazon expects its revenue to grow by only 4% to 8% to between $121 billion and $126 billion in the first quarter of 2023.
"In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon," CEO Andy Jassy said.
