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Amazon reports $30B in profits in 2023, reversing loss in prior year

By Lauren Rosenblatt, The Seattle Times
Published: February 2, 2024, 8:17am

SEATTLE — Capitalizing on quicker package deliveries, the growing hype around generative AI and savings from incremental layoffs, Amazon ended 2023 on a strong note.

The Seattle-based retail and tech giant exceeded analyst expectations and its own estimates for the final three months of the year in its fourth-quarter and full-year earnings released Thursday.

In 2023, Amazon reported $30.4 billion in net income, up from a $2.7 billion loss in 2022. For the three months ending in December, it reported $10.6 billion in net income, up from $300 million in the same time period a year ago.

The fourth quarter “was a record-breaking Holiday shopping season and closed out a robust 2023 for Amazon,” CEO Andy Jassy said in a statement Thursday. “As we enter 2024, our teams are delivering at a rapid clip, and we have a lot in front of us to be excited about.”

On the retail side of the business, Amazon said it decreased the “cost to serve,” or the cost of fulfilling an individual order, for the first time since 2018. It brought down that cost 45 cents per item, executives said on a call with investors Thursday.

Jassy credited that decrease to two changes in Amazon’s fulfillment network: an increase in the number of facilities that are prepared to execute same-day or next-day delivery and a shift to a regional fulfillment network.

Amazon said last year it had broken the country into eight regions, hoping to store products closer to customers to reduce delivery time and expenses. The company said this week its plan had paid off: It reported its fastest delivery speeds ever in 2023, with more than 7 billion units arriving the same or next day after an order is placed.

“Improving delivery speeds was a priority for our entire team,” Doug Herrington, CEO of Amazon Worldwide Stores, wrote in an announcement earlier this week. But “while we’re proud of what we’ve achieved so far, we know there’s more we can do for our customers.”

Jassy echoed that sentiment Thursday and told investors Amazon planned to improve inventory placement and its inbound processes to further reduce the cost to serve. Those savings could then be passed to customers, Jassy continued.

“It’s not hard to lower prices. It’s hard to be able to afford lower prices,” he said.

Amazon’s fourth quarter had some of the company’s largest shopping events of the year, including Amazon’s Prime Big Deal Days in October, Black Friday and Cyber Monday. Net sales for the fourth quarter increased 14% year over year to $170 billion.

Meanwhile, Amazon reported $14.6 billion in advertising sales, up 27% from the same quarter a year earlier, and $10.4 billion from subscription services like Prime and Audible, up 14% from the same time period a year ago.

Amazon Web Services sales increased 13% to $24.2 billion signaling that customers are shifting away from cost optimization and eager to pursue projects that may have been put on hold, according to Chief Financial Officer Brian Olsavsky.

In the last year, Amazon has capitalized on the generative AI wave. It unveiled a corporate chatbot, Amazon Q, to help employees with daily tasks like summarizing documents, filling out internal support tickets or answering questions about company policies. It introduced the next generation of its AI chip, Trainium2. And it continued to update Bedrock, a foundational model that others can use to build AI applications.

On Thursday, Amazon introduced an AI shopping assistant, named Rufus, to help customers search through Amazon’s catalog. Rufus is trained on Amazon’s customer data and can answer questions like “Is this pickleball racket good for beginners?” or “Where can I find the best raincoat?”

Rufus is one of several AI projects Amazon has in the works to bring new tech to each part of its sprawling business, Jassy told investors Thursday. On its website, it introduced a tool to help customers see how a piece of clothing might fit them. In its warehouses, it uses AI to predict how much inventory it should stock in a particular facility.

“Every one of our consumer businesses has a significant number of generative AI applications that they either have built and delivered, or they’re in the process of building,” Jassy said. “I don’t see that changing for many years. We have a lot of ideas.”

Before Thursday’s earnings announcement, analysts for J.P. Morgan anticipated a strong quarter. It’s “our view that the stock can continue to climb higher,” analysts wrote in a note to investors Monday.

The analysts pointed to expectations that Amazon will continue to capitalize on interest in generative AI, despite “softened” growth in the last quarter of the year and the start of January.

At the same time, the analysts said, Amazon had prepared to offset any rising costs from external factors, like shipping disruptions, by building in other cost-cutting measures like the regionalized fulfillment network and reduced head count.

Amazon has laid off more than 27,000 people in the last year and a half. It first started making cuts in November 2022, when it began to reevaluate nearly every project and team at the company. In January, it continued the trend of rolling layoffs with cuts to Twitch, Prime Video and other teams. It’s not clear how many workers were laid off at that time.

Teams now are being told to “hold the line on head count” or “perhaps go down,” as Amazon continues to look for efficiencies, Olsavsky told reporters Thursday. But rather than deeming 2024 a “year of efficiencies,” he said Amazon is growing in some areas and continuing to be careful in where it invests.

Amazon’s fourth-quarter profit included a $100 million loss from its investment in the electric vehicle startup Rivian Automotive. In the fourth quarter of 2022, Amazon lost $2.3 billion from its Rivian investment.

For the full year, Amazon’s profit included an $800 million gain from Rivian, compared to a $12.7 billion loss in 2022.

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Amazon expects net sales to increase 8%-13% in the first quarter of 2024, to $138 billion or $143 billion. It expects operating income to be between $8 billion and $12 billion, compared to $4.8 billion for the first quarter of 2023.

Dan Romanoff, a senior research analyst for Morningstar, said in a note before Amazon’s Q4 earnings release that the last “year’s worth of restructuring has already started to bear fruit.”

Amazon has been “disrupting the traditional retail industry for more than two decades,” Romanoff wrote, and “consumers have embraced this disruption.” That will likely pay off in economic returns for years to come, he said.