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Investors are looking for evidence that Amazon.com is making progress on its push to rein in costs.
David Ryder/Bloomberg
Amazon
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com shares were falling in late trading Thursday after the company posted mixed results for the fourth quarter, with better-than-expected sales growth, but weaker-than-anticipated profits, due largely to a loss on the company’s stake in electric truck maker Rivian Automotive.
Revenue at the company’s closely watched Amazon Web Services unit were a little shy of expectations. The company’s revenue outlook for the first quarter came in well shy of consensus estimates.
The stock was off 3.4% in after hours trading following the earnings report.
This is breaking news. Read a preview of Amazon’s earnings below and check back for more analysis soon.
Amazon’s fourth-quarter financial results, due after the close of trading on Thursday, will likely show the effects of weakening conditions in three of its most important markets—online shopping, cloud computing, and digital advertising.
The question investors face is how much of that is already discounted in the stock price, which lost about half of its value last year.
For the quarter, Wall Street consensus estimates for Amazon (ticker: AMZN), as measured by FactSet, project revenue of $145.9 billion, up 6%. The company’s own forecast calls for revenue of between $140 billion and $148 billion.
Consensus estimates call for fourth-quarter earnings of 17 cents a share, but the number will be muted by mark-to-market accounting for the company’s stake in Rivian Automotive (RIVN). The truck manufacturer’s stock slid 44% in the fourth quarter, resulting in a paper loss of about $2.3 billion for Amazon.
Amazon sees operating income of between zero and $4 billion for the period; Street consensus is for $2.7 billion.
Meanwhile, Amazon will face scrutiny on the performance of all three key segments.
Street estimates project online stores sales of $65.2 billion, down 1% from a year ago. That forecast reflects both a tough comparison with 2021, and the softening of consumer spending in the most recent holiday shopping period. The market will be looking for signs of resilience—and evidence that the company has made progress on its push to rein in costs.
Analysts have been antsy about the outlook for Amazon Web Services, the company’s cloud computing arm, after softer-than-expected guidance last week from rival
Microsoft
(MSFT) Azure. In reporting December quarter results, Microsoft said Azure grew 38% on a currency-adjusted basis in the December quarter, which was actually about a percentage point ahead of Street expectations. But Microsoft also said business slowed over the course of the quarter, and it expects further deceleration in Azure’s growth in the March quarter.
Street estimates call for AWS to report revenue of $21.8 billion for the December quarter, which would be up 23% from a year ago, moderating from 27% growth in the September quarter. Some cloud vendors have been working with customers on optimizing their spending, in some cases shifting from pay-as-you-go consumption models to contract-based models to make costs more predictable. Current Street estimates call for further deceleration from here—consensus is for $22.3 billion AWS revenue in the March quarter, up 21% from a year earlier.
Meanwhile, analysts’ models call for $11.4 billion in revenue from advertising in the quarter, which would be up 17% from a year earlier. But there are signs of weakness in the ad market as well. Microsoft said ad revenue from both LinkedIn and Bing were below expectations in the December quarter, and Snap (SNAP) this week posted disappointing results and guidance.
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.
Investors will be looking for evidence that the cost-cutting is having an impact on profitability and free cash flow—the company has posted negative free cash flow growth in four of the last five quarters.
For the March quarter, the Street is projecting revenue of $139.2 billion, up just 4% from a year earlier, with operating income of $4.2 billion, and profits of 28 cents a share.
Write to Eric J. Savitz at eric.savitz@barrons.com
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