WSJ - Amazon Quarterly Sales Surge on Strong Holiday Shopping

E-commerce company has benefited from resilience in retail industry

WSJ 2/1/24 Sebastian Herrera

quarterly sales rose faster than expected, driven by strong e-commerce sales during the critical holiday shopping season.

The tech giant said Thursday that revenue in the three months through December rose 14% to $170 billion, while profit surged to $10.6 billion, its strongest level in two years. Both figures easily beat Wall Street expectations.

Sales in the Amazon Web Services cloud-computing arm, a critically important profit center for Amazon, increased 13% in the fourth quarter to $24.2 billion, matching expectations. The division’s operating profit rose nearly 38%.

AWS sales had decelerated last year, after years of rapid expansion. Lower enterprise demand hurt the unit, though Amazon indicated it expected growth to pick up again as businesses responded positively to the company’s latest cloud offerings.

Amazon’s stock was initially up more than 4% after markets closed on Thursday.

Amazon has rebounded from a postpandemic slump and reorganized its dominant logistics business after a period of instability while also turning its attention to innovations in artificial intelligence. Strong customer demand during the holiday season benefited the retailer, which also held a special sales event during the fourth quarter that lifted its sales. The Commerce Department recently said U.S. retail sales were strong to end the year

The company has continued to adjust its corporate head count after a wave of layoffs to start 2023. In recent months, it has slashed roles across its entertainment, devices and games divisions, citing shifting priorities across its businesses that include artificial intelligence. The cuts so far have been smaller than a year ago, when it laid off roughly 27,000 employees.

Amazon’s overall head count, including its army of warehouse workers, totaled 1.53 million at the end of 2023, slightly below its level a year earlier.

Amazon also projected continued strong growth in the current quarter, saying revenue would grow between 8% and 13% from a year earlier, in line with analysts’ expectations. It expects operating income to be between $8 billion and $12 billion this quarter, suggesting a midline above the current consensus.

Amazon’s earnings followed solid results from its tech peers.

Microsoft posted its highest profit growth in over two years, with excitement about its AI capabilities powering growing demand for its cloud services. Google parentAlphabet recorded advertising sales that [fell short of Wall Street’s expectations, though it also marked its fourth-straight quarter of accelerating sales growth.

A year ago, Amazon warned of a period of reduced growth as it looked to control its costs and started to experience deceleration from the cloud-computing business. Lately, the company has been more upbeat, saying in November that it had record sales during the Black Friday weekend. It has also sought new revenue streams. This week, the company began to show ads on its Prime Video platform unless customers pay more.

Chief Executive Andy Jassy has reoriented Amazon to focus on AI innovations. The company fell behind in the AI race compared to Microsoft, Google and other peers and lately has tried to generate buzz around AI products and services in the cloud division, known as AWS. Amazon is a large investor in AI startup Anthropic, and the company in November introduced an AI chatbot for companies it calls Amazon Q.

On Thursday, the company announced it is launching an AI-powered shopping assistant named Rufus on its mobile app.

Amazon also said its advertising revenue grew 27% in the fourth quarter. The business has become one of Amazon’s strong points in recent years and helped drive profits.

Some of Amazon’s peers have stumbled as the tech giant has rebounded.

United Parcel Service, which competes with Amazon’s logistics business, this week said it would cut 12,000 of its workers. The company has experienced weaker volumes in its domestic and international businesses as Amazon has overtaken it in package-delivery volume.

Layoffs and leadership changes have colored Amazon’s recent history. Jassy, who became CEO in 2021, has pushed to boost profits. He has also sought to strengthen Amazon’s supply chain by moving packages faster and placing warehouses closer to customers, ash the company attempts to reduce delivery times and costs.

Amazon has grappled with significant challenges in the past few months, including new competition from fast-growing e-commerce companies and an antitrust lawsuit from the Federal Trade Commission that could seek a breakup of the company.

The Wall Street Journal on Thursday reported that Amazon is facing an order from the U.S. Consumer Product Safety Commission that could make it responsible for the safety of goods that it sells for outside vendors on its website and ships for them through its logistics network.

“As many opportunities as there are for Amazon, there are also more threats than ever from many directions,” Andrew Lipsman, an e-commerce analyst and consultant, said before Amazon reported its earnings. “They have to make sure they’re watching their blind spots while looking into the future.”

The start of 2024 has come with other obstacles. The FTC said in January that it would probe AI investments made by Amazon, Microsoft and Alphabet
to study the companies’ partnerships and how they affect the competitive landscape for AI.

This week, Amazon was forced to end its takeover deal with robotic vacuum maker
iRobot after competition officials in the European Commission, the European Union’s executive body, planned to block the acquisition. The two companies said the deal had “no path to regulatory approval in the European Union.”

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Sure it did. Our CPC went from 92 cents to nearly $3 in a year. I think they left a digit off that 27%.

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I think the supplement category has one of the highest CPCs out of anything, and competition has intensified a lot. The space is so saturated it’s ridiculous. Anyone starting a new brand today isn’t just going uphill, but upmountain

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I think you are right and it’s ironic that the category has one of the lowest average selling prices. Figure that one out…

It’s a very tough space and I have no idea how people without experience and connections make any money in the category.

I’m shuttering my slower, Amazon based business this year because I pay everyday Joe costs on that one even though the supplier for that is my partner on the other business.

My partner on that one retired (at 45) with his wife and moved to Hong Kong so whatever… Ain’t nobody got time for this BS… Focus attention and time where warranted…

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Well, it makes sense because it’s a LTV category. A lot of these products are reordered monthly, or at some other interval, so it makes sense to pay > 100% of the selling price for a customer acquisition.

If you’re selling a garlic press there’s no real repeat business value there so you can’t be paying through the nose for ads.

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I would agree with you but most consumers don’t know how to reorder from their existing orders so they end up banging you out for another click each and every time they reorder.

That SHOULD NOT be allowed. If a buyer has purchased the product before and clicks another Ad to re-buy, that should not count but OF COURSE it does because - $ for Amazon…

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I doubt that this will only be for items shipped through the Amazon network.

I see it as a pretty simple extension of the change in the laws that strips websites of any protections from liability for selling counterfeit/stolen goods.

Expect more and more restrictions and gating of even basic categories on Amazon in the future. Of course my wife says I am a pessimist…

And, that opinion could be somewhat clouded by my view that the Govern ment (it seems that the guverment is not a permitted word) WILL do whatever is needed to take more control of everything over time…