Even Amazon’s cloud business is losing steam.
Amazon Stock Suddenly Weak. The cloud infrastructure behemoth Amazon Web Services, which has supported the stock for the majority of the past ten years, reported its weakest growth ever in the fourth quarter.
Just 20% of AWS’s revenue increased throughout the quarter, a sharp slowdown from 27% growth in the third quarter and 40% growth in Q4 2021. This slowdown wasn’t wholly unexpected because CFO Brian Olsavsky had mentioned AWS issues on the third-quarter results call, and the company’s estimate for Q4 projected only 2% to 8% overall revenue growth.
Amazon’s Q4 revenue increased overall by 9% to $149.2 billion, exceeding projections of $145.2 billion. A mark-to-market loss on its investment in Rivian has been included in the company’s $0.03 per share generally accepted accounting principles (GAAP) earnings per share. EPS of $0.17 was the analyst consensus.
The company’s guidance was equally conservative, expecting first-quarter revenue growth of 4% to 8%.
As the results and expectations were a long cry from the rapidly expanding digital behemoth of yore, Amazon shares dipped further in after-hours trade on Thursday, down 5%.
Trouble in paradise Amazon Stock Suddenly Weak :
The fourth-quarter earnings report suggests that Amazon Web Services’ breakthrough growth and very high margins, which have pleased Wall Street for years, may be coming to an end. In addition to sales increasing barely 20% to $21.4 billion, operating income actually decreased 2% from the prior quarter to $5.2 billion, marking the lowest profit since Q3 2021.
Operating income decreased by 10% on a constant-currency basis, while AWS’ operating margin decreased to 24.3%, the lowest level since 2017.
Management predicted that AWS’s growth would be considerably slower in the first quarter, with year-to-date gains only reaching the mid-teens.
Due to macroeconomic difficulties, AWS clients have been concentrating on cost optimization, which has slowed the growth rate of its cloud business, according to CFO Brian Olsavsky.
It’s noteworthy that AWS’s growth rate fell behind those of its main competitors, Microsoft Azure and Alphabet’s Google Cloud, indicating that it is losing market share. In Microsoft’s quarter that concluded in December, Google Cloud revenue increased 32% to $7.3 billion while Azure sales increased by 31%.
Investors would prefer to see stronger returns from the e-commerce section as AWS slows down, but those figures are much worse. Despite the fact that the fourth quarter is traditionally the strongest for e-commerce, the company lost $2.5 billion in its non-AWS sectors, which are mostly comprised of that business. Outside of AWS, it reported an operating loss of $10.6 billion for the year.
In the call, management said that in order to keep up with demand during the epidemic, it had doubled its fulfillment network in just a few years and added delivery capabilities comparable to those of UPS.
It basically stated that it would take time for those networks to become effective, and Amazon has previously recognized that it overgrew during the pandemic in the hope that the pandemic demand trend would continue, which did not.
Is this a red flag for Amazon?
Amazon still has a lot of competitive advantages, such as its Prime loyalty program, third-party marketplace, shipping network, and AWS, which continues to produce significant revenues, even though its fourth-quarter results are underwhelmed.
However, it’s obvious that management still has work to do to reduce expenses and promote profitable growth even after the corporation let go of 18,000 corporate personnel. In 2022, the corporation reported an operating income of $12.2 billion and revenue growth of just 9%.
Those figures don’t make up for an organization valued at over $1 trillion, or close to 100 times operating income, and few companies other than Amazon would be given such a high multiple from Wall Street with that kind of growth and profitability.
Although there is likely to be a ceiling on the stock until the economy improves, investors appear hopeful that the company will return to better growth on the top and bottom lines. This is especially true after shares increased by 40% in just a few weeks prior to the report.
The AWS growth narrative is losing pace, and e-commerce is losing billions of dollars every quarter. As a result, Amazon’s fundamentals are less strong than they have been in a very long time. Given its past performance, Amazon is currently deserving of a break, but if business remains sluggish, the stock may quickly lose all of its recent gains.
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