Amazon's fourth quarter earnings report released after the market on Thursday showed that the fourth quarter results and first quarter results guidance were generally better than expected, causing Amazon's stock price to rise by more than 9% after the market. Among them, Amazon Cloud business revenue increased 13% year over year, easing investors' concerns about declining demand for cloud services.

Fourth quarter results and first quarter guidance were better than expected

According to financial reports, Amazon's net revenue for the fourth quarter was US$169.96 billion, up 14% year on year, higher than analysts' expectations of US$166.21 billion; operating profit was US$13.21 billion, higher than analysts' expectations of US$10.49 billion. Earnings per share of $1.00 were higher than analysts' expectations of $0.78.

Among them, net sales in North America for the fourth quarter were US$105.51 billion, with analysts expecting US$102.88 billion; net sales of physical stores of US$5.15 billion, with analysts expecting US$5.23 billion; net sales of AWS of US$24.20 billion, with analysts expecting US$24.22 billion; net sales of AWS excluding foreign exchange factors increased 13%, and analysts expected an increase of 11.8%.

For the first quarter, Amazon expects net revenue of $138 billion to $143.5 billion, and analysts expect $142.01 billion. Operating profit for the first quarter is estimated at US$8 billion to US$12 billion, and analysts expect US$9.12 billion.

After the financial report was announced, Amazon's US stock rose 0.8% after the market, and the increase then extended to more than 9%. The stock has risen 4.8% this year, and surged 81% in 2023.

The results of cutting expenses will continue to be prudent this year

Analysts believe that Amazon's strong fourth quarter revenue and operating profit guidance exceeded expectations, indicating that CEO Andy Jassi's strategy of cutting costs and focusing on profitable services is reshaping the once profligate company. For example, fourth-quarter revenue increased 14% year over year, about twice as fast as expenditure, indicating that cost reduction measures are increasing profits without affecting growth.

In a statement, Jassie said, “This quarter was a record holiday shopping season, ending Amazon's strong performance in 2023. As we enter 2024, our team is delivering results at a breakneck speed, and we have a lot of exciting things ahead of us.”

Analysts said that in general, despite many concerns in the tech industry, Amazon performed surprisingly well. The results showed that ongoing cost reduction measures had a positive impact on Amazon's business prospects.

Jia Xi has been cutting expenses until now, including laying off more than 35,000 employees to increase profits while resisting competition from the US version of Pinduoduo Temu and TikTok. Earlier this month, Amazon announced it was laying off hundreds of employees in its Prime Video streaming and studio business and Twitch live streaming service. In November of last year, the company also cut positions in the music and games division and the department responsible for voice assistant Alexa. Amazon said that at the end of 2023, its total number of full and part-time employees was about 1.53 million, down 1% from the previous year.

Amazon Chief Financial Officer Brian Olsavsky said on Thursday that the company will continue to be cautious about new investments, but does not consider 2024 to be an “efficient year.” Olsavsky said, “We will continue to invest in new things and new areas, and things that resonate with our customers. Where we can find efficiency and do more, we'll do the same.”

CFO: Cloud business will continue to grow

Amazon Web Service, an Amazon cloud business, rebounded after several consecutive quarters of poor performance. The business's revenue increased 13% year over year to reach 24.2 billion US dollars, compared to a 12% increase in sales in the past two quarters. However, some analysts said that this slight acceleration has also raised doubts, and it is doubtful whether the Amazon Cloud business can hold its ground against competitors' attacks.

However, Olsavsky said it is expected that AWS sales will continue to grow at an accelerated pace. He said that the growth of AWS has slowed in the past year as companies cut spending on the cloud, but the company is seeing these cost optimizations weaken and new workloads are being added. He said that customers have “a lot of interest” in AWS's generative artificial intelligence products, such as the AI chatbot “Q” provided to enterprises.

To diversify revenue, Amazon stepped up efforts to generate ads on its shopping site and began broadcasting commercials on the Prime Video streaming service last month. Ad sales increased 27% in the period ending December 31, accelerating for the fourth consecutive quarter. Analysts say the highly profitable advertising business benefits from rapidly growing demand from sellers in third-party marketplaces.

Launched Rufus, an artificial intelligence shopping assistant

Just before the financial report was announced, Amazon announced that it was testing a generative artificial intelligence shopping assistant called Rufus, which is currently being offered to a small group of mobile customers for testing.

The tool is designed to help users search and shop for products. Shoppers type or ask questions in Amazon's mobile app into the search bar, and a chat window will appear at the bottom of the screen. Users can ask conversational questions such as “What's the difference between trail running shoes and road running shoes?” or “Compare drip and hand-brewed coffee makers.”

Amazon said in a blog post: “Rufus has significantly improved the ease with which customers can find and discover the best products for their needs.” The company said Rufus used Amazon's product catalog, customer reviews and Q&A, and information from the internet to answer questions.

Amazon said it's testing the feature with a small group of users in the US, but plans to roll it out nationwide in the next few weeks. CEO Jia Xi said the company plans to use generative artificial intelligence in all of its businesses.

In recent months, Amazon has launched a number of generative artificial intelligence tools and services, taking advantage of the boom caused by OpenAI's ChatGPT. The company has tested artificial intelligence tools to answer shoppers' questions and summarize reviews, as well as artificial intelligence features to help third-party sellers write listings. In addition to the retail business, Amazon is also launching Q, a chatbot for businesses, and Bedrock, a generative artificial intelligence service for cloud customers.

2024 starts unfavorable

However, Amazon is also facing many difficulties after entering 2024. The US Federal Trade Commission (FTC) said in January that it will investigate AI investments made by Amazon, Microsoft, and Google to study the partnerships of these companies and their impact on the competitive landscape of artificial intelligence.

This week, Amazon was forced to end the takeover deal with robotic vacuum cleaner maker iRobot as competition officials at the European Commission, the EU's executive body, planned to block the acquisition. The two companies said the deal had no way to obtain regulatory approval in the EU.

The cash acquisition agreement announced by Amazon in 2022 valued iRobot at 1.7 billion US dollars, and in this Monday's session, iRobot's market capitalization was less than 400 million US dollars.

According to reports, Amazon and iRobot have signed an agreement to end the acquisition to resolve all outstanding issues in the transaction, including Amazon paying iRobot a $94 million break-up fee.

Amazon's senior vice president and legal director David Zapolsky said Amazon was disappointed that it was unable to proceed with plans to acquire iRobot. This result will deprive consumers of faster innovation and more competitive prices they could have enjoyed. Amazon believes that the acquisition will make their lives easier and more enjoyable, and that the acquisition will help companies such as iRobot better compete in the global market, especially in countries facing inconsistent regulatory requirements in rapidly developing technology fields such as robots, to compete with local companies. Undue excessive regulatory barriers discourage entrepreneurs, harming consumers and competition, which are exactly what regulators claim they are trying to protect.

Editor/Somer