Amazon Stock Falls on Mixed Q4 2022 Earnings and Tepid Guidance



Amazon stock (NYSE: AMZN) is trading lower in premarkets after it reported its earnings for the fourth quarter of 2022. While the company’s performance in the quarter was mixed, it spooked markets with its guidance.

Amazon and other tech stocks soared yesterday after Meta Platforms’ earnings release. However, Amazon, Apple, and Alphabet disappointed markets with their earnings yesterday. The crash in these index heavyweights is also pulling down the tech-heavy Nasdaq Composite Index today.

Looking at Amazon’s earnings, it reported revenues of $149.2 billion which was 9% higher than the corresponding quarter last year. The revenues surpassed analysts’ estimate of $145.4 billion and were also higher than the company’s guidance of between 2-8% revenue growth.

AWS revenue growth slows down

Looking at the breakup of Amazon’s Q4 2022 revenues, AWS reported revenues of $21.4 billion which fell short of the $21.87 billion that analysts were expecting. The segment’s sales rose 20% which is a new low for the cloud business.

In the third quarter, AWS sales growth had fallen to 27% which was the lowest since Amazon started separately reporting its results. AWS revenue growth was below analysts’ estimates in the third quarter as well. The company warned of a further slowdown in the fourth quarter.

While analysts have toned down their expectations from the once high growing business, the actual performance failed to meet even the somber expectations.

E-commerce sales have stalled

E-commerce sales growth has stalled amid slowing retail spending. In Q4 2022, Amazon’s North American e-commerce operations posted revenues of $93.4 billion, a YoY rise of 13%. However, the sales at International e-commerce operations fell to $34.4 billion as compared to $37.3 billion in the corresponding quarter in 2021.

Notably, the company’s international operations have been negatively impacted due to the stronger US dollar. The company said that adverse currency movements shaved off $5 billion from its Q4 2022 revenues.

Other US companies with international operations are also grappling with a stronger US dollar. Apple said that currency fluctuations negatively impacted its earnings in the December quarter by a whooping 800 basis points.

Amazon revenue growth fell to record lows

Amazon’s advertising business meanwhile performed better than expected and generated revenues of $11.56 billion in the quarter which was ahead of the $11.38 billion which analysts expected.

All said, in the full year Amazon’s sales growth was only 9% which is the slowest pace of annual rise since it went public. Other FAANG stocks are also battling a growth slowdown. In the December quarter, Apple’s sales fell 5.5% which was the steepest pace of decline since 2016.

Netflix’s revenue growth also fell amid the economic slowdown.

Amazon profits slumped in Q4

Amazon posted a net income of only $0.3 billion in Q4 which transforms into an EPS of 3 cents. The company’s profits fell short of what markets were expecting. It posted an operating income of $2.7 billion in the quarter which was above the midpoint of its guidance.

That said, only AWS posted an operating profit of $5.2 billion in the quarter. While the North American segment lost $240 million, the international business reported an operating loss of $2.2 billion.

In the full year, the North American business reported an operating loss of $2.8 billion while the commensurate figure for international business was $7.7 billion. As has been the case for the last many quarters, AWS was the savior and generated an operating profit of $22.8 billion in the quarter.

Andy Jassy on Amazon earnings

During the earnings call, Amazon’s CEO Andy Jassy said, “In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon.”

Notably, Amazon has eliminated 18,000 positions as part of the cost-cut exercise. The company was previously looking to lower the workforce by around 10,000 but scaled up the layoffs.

During the earnings call, Jassy said, “We’re working really hard to streamline our costs and trying to do so at the same time that we don’t give up on the long-term strategic investments that we believe can meaningfully change broad customer experiences and change Amazon over the long term.”

Amazon provided guidance for the first quarter

Amazon forecast sales growth between 4-8% in the first quarter. It sees revenues between $121 billion to $126 billion in the first quarter while analysts were expecting the metric at $125 billion.

Amazon said that its growth rates might not revive anytime soon. It also warned that so far in 2023, AWS revenue growth is in the mid-teens.

The company forecast operating income between $0-$4 billion for the first quarter. It posted an operating income of $3.7 billion in the first quarter of 2021.

Meanwhile, Amazon posted negative free cash flows of $11.6 billion in 2022 which was higher than the cash outflow of $9.1 billion in 2021.

AMZN stock slumped in 2022

Amazon stock fell almost 50% last year and was the third worst performing FAANG stock of the year. It was barely in the green in 2021 and underperformed the FAANG peers by a wide margin.

In 2021, Amazon looked set to become a $2 trillion company but last year, its market cap fell even below $1 trillion. It became the first company ever to lose $1 trillion in market cap. Apple too joined it on the dubious list after the stock crashed on the first trading day of 2023.

AMZN stock has meanwhile rebounded from the lows and the market cap has surpassed $1 trillion. However, as the Q4 2022 earnings show, there is a lot of work to be done before the stock reaches anywhere near its all-time highs.



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