- Inflation is pushing costs higher
- Operating profit halves from same quarter last year
Amazon’s (US:AMZN) results were a push and pull between its now lossmaking retail business and the highly profitable Amazon Web Services (AWS) division. In the fourth quarter, total operating income was down 50 per cent year on year to $3.46bn (£2.56bn).
Online sales were up just 1 per cent year-on-year and because of rising costs meaning the retail business swung to a loss. Removing the AWS figures, the tech giant would have posted an $1.83bn loss. Management will be thankful the cloud business operating profit was up an impressive 48 per cent year on year to $5.29bn.
Total operating expenses increased 13 per cent to $134bn – this included a 21 per cent increase in fulfilment costs, which are now $22bn. To help offset this cost inflation, Amazon decided to increase the price of the Prime Membership by 17 per cent to $139 a year.
Hargreaves Lansdown analyst Sophie Lund-Yates said Prime members would stomach this rise, and that it would “do wonders for cash flow”. Netflix (US:NFLX) has also recently increased its subscription fee in the US and, with energy prices rising as well, there could be some tough decisions to be made in households.
Brokers have pulled back their forward sales expectation – even with the strong cloud business and rising Prime subscription fee. The consensus 2023 sales forecast via FactSet has fallen 2.2 per cent since the start of the year to $470bn. The company's forecast for the current quarter is for a similar operating income figure, between $3bn and $6bn, down from $8.9bn a year ago.
Despite the retail gloominess, Amazon’s share price was up 6.2 per cent in after-close trading. It’s hard to bet against the cloud, but for the world’s largest online retailer, it would be nice to see some retail profits.
