Amazon delivered better-than-expected revenue at $149.2 billion in the fourth quarter, but profit slumped to $300 million and it warns operating profit could fall to zero this quarter, compared to $3.7 billion in the same period last year. The ecommerce giant said savings from layoffs do not make up for the financial impact of consumers cutting back on spending. Demand in Europe and the UK was hurt by inflation and the conflict in Ukraine, lowering international growth rates.
Amazon said it will temporarily halt the expansion of its line of Fresh grocery stores until it can find a format that differentiates the company’s offerings from others in the industry. Meanwhile, Amazon has sought new revenue streams, adding delivery fees placed through Amazon Fresh online and a service fee for Prime members who want home delivery from Whole Foods.
Mintel comment:
“The Q4 results paint an interesting picture of the current strategy at the largest online retailer in the world. While total revenue was up 9% globally in the final quarter, beating expectations, the retail side of the operation saw sales fall 1.2%, again ahead of expectations and the wider online market which is still rebalancing following the peak of demand in 2020 and 2021. For the year retail sales were broadly flat, +0.4%, and with stronger growth (+18.8%) on the services side of the business (AWS, logistics, Prime etc) it means for the first time services (52.7%) were the dominant revenue generator for Amazon, something that underlines the evolution of Amazon over the past two decades.
Despite the better than expected revenue, profits have been slashed with an overall net loss for 2022. Here rising costs across the business were the main downward pressure, from fulfilment to staffing Amazon like all businesses is too facing significant cost of living cost pressures. While staff numbers were down 4% in the quarter, the retailer (either directly or indirectly) still employs 1.5 million people, and this alone is forcing some difficult decisions. The spirit of free-wheeling innovation is being curtailed, and those businesses which have seen significant investment, such as physical stores, are being put in review to understand moving forward how this become more sustainable.
There is far more within these results to delve into, and we will do so in much more detail in Mintel’s upcoming Amazon: Creating an Ecosystem – UK and Europe 2023 Reports.”
