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Sales of Cloud Computing on Amazon Are Anticipated to Stagnate

Sales of Cloud Computing on Amazon Are Anticipated to Stagnate

Amazon.com Inc. tempered a recent feel-good period for investors by reporting that consumer demand remains soft and sales in its lucrative cloud-computing division will continue to slow through the year. The shares fell in extended trading.

The company’s core business of selling goods in North America lost money for the fifth straight quarter despite job cuts and a pause in opening new warehouses begun last year. Amazon Web Services is losing its luster with slowing growth and shrinking profit margins after a stellar run during the pandemic.

“We expect to see slower growth rates the next few quarters,” Chief Financial Officer Brian Olsavsky said Thursday about the cloud market on a call with reporters. He also said inflation-battered shoppers are opting for less expensive brands and consumer sentiment in Europe and Asia appears harder hit than in the US.

It’s a troubling forecast because AWS has long generated most of the company’s profit. Amazon’s division that rents computing power and data storage generated sales of $21.4 billion, an increase of 20% from a year earlier — the fourth straight period of declining growth after a 40% jump in the last quarter of 2021. The unit’s performance fell just short of estimates and followed rival Microsoft Corp.’s disappointing results for its cloud division last week.

“The expected deceleration in AWS was even worse than expected and means Amazon can’t rely on that business unit’s operating profits as much in coming quarters,” said Andrew Lipsman, an analyst at Insider Intelligence.

Chief Executive Officer Andy Jassy is cutting costs after rapid hiring and expansion during the pandemic left Amazon saddled with too many warehouses and employees. The company has slowed the opening of new buildings, abandoned some facilities, and started axing experimental teams. The Seattle-based company started a new round of job cuts last month that will eventually total 18,000 employees.

“I think probably the No. 1 priority that I spend time on with the team is reducing our costs,” Jassy said on a conference call after the results.

Amazon employed 1.54 million full- and part-time workers at the Dec. 31 end of the period – a 4% decline from a year earlier.

Fourth-quarter revenue increased 9% to $149.2 billion, topping analysts’ average estimate of $145.8 billion, according to data compiled by Bloomberg. Revenue will be $121 billion to $126 billion in the period ending in March, Amazon said in a statement. Analysts, on average, projected $125.5 billion.

Online store sales, however, fell 2% to $64.5 billion, missing analysts’ estimates. It was the fourth of five quarters that revenue declined in Amazon’s main business.

Shares fell about 4% in extended trading after closing at $112.91 in New York. The stock gained 34% so far this year after losing half of its value in 2022 – the company’s worst performance in more than a decade.

While Amazon’s holiday revenue was better than forecast, the reaction of the stock showed investors expected “blowout results” and were disappointed, said Brendan Witcher, an analyst at Forrester Research Inc.

“With Amazon’s stock on a positive 30% run for the past month, expectations were already high,” he said.