Amazon’s latest earnings results combined strong holiday demand and brisk cloud growth with a spending outlook that unsettled investors. The company reported that fourth-quarter sales rose 14%, supported by holiday spending and what it described as better-than-expected growth in Amazon Web Services, its flagship cloud-computing business. But shares fell after the earnings release, with investors reacting to Amazon’s plan for a large jump in capital spending and a profit figure that Amazon said was slightly below what analysts expected.
In after-hours trading Thursday, Amazon shares fell 11% following the company’s disclosure that it expects to increase capital spending by nearly 60% to $200 billion from $128 billion last year. Wall Street analysts were expecting capital spending to rise to about $147 billion this year, according to FactSet. The company’s forward-looking comments also came alongside a narrower margin of comfort in profits: Amazon reported fourth-quarter profits that were slightly below analysts’ projections.
Amazon also delivered a set of numbers tied to consumer demand. The company said fourth-quarter sales surged 14%, and it reported that product sales during the holiday period rose 9.4%. For the current quarter, Amazon said it expects sales to be between $173.5 billion and $178.5 billion, while analysts were projecting $175.6 billion.
Financially, Amazon reported net income of $21.2 billion, or $1.95 per share, for the three-month period ended Dec. 31. That compared with net income of $20 billion, or $1.86 per share, in the year-ago quarter. Amazon’s revenue for the quarter rose to $213.4 billion from $187.8 billion a year earlier. Analysts had expected $1.97 per share on sales of $211.4 billion, according to FactSet.
On the call following the earnings release, CEO Andy Jassy told investors that the company expects strong long-term returns on invested capital. “We are continuing to see as fast as we install this capacity, this AI capacity, we are monetizing it,” Jassy said. “So it’s just a very unusual opportunity. I passionately believe that every customer experience that we know of today is going to be reinvented.”
Amazon’s cloud business was also a focal point for investors comparing it with rivals. Amazon said it delivered 24% growth for Amazon Web Services in the fourth quarter, the fastest growth in 13 quarters, and reported AWS revenue of $35.6 billion. Analysts had expected AWS revenue of $34.9 billion. The company also pointed to year-on-year cloud growth at competitors, noting that Alphabet said its cloud business registered a 48% increase, or nearly $18 billion in revenue.
The earnings update also landed as Amazon continues a sequence of job cuts and store closures tied to its shifting priorities. The company is slashing about 16,000 corporate jobs in a second round of layoffs over three months, and said in an emailed statement last week that AI was “not the reason behind the vast majority of these reductions.” Amazon attributed the reductions to eliminating layers to drive speed. In addition, Amazon said it would cut about 5,000 retail workers after decisions to close almost all Amazon Go and Amazon Fresh stores, according to notices it sent to state workforce agencies in California, Maryland and Washington.
Amazon’s broader retail restructuring included further detail on the store closures. The company said some of the shuttered locations would be converted into Whole Foods locations. Amazon also introduced Amazon Now, an ultra-fast delivery service offering delivery on thousands of items in 30 minutes or less, which it said is available in various cities in India, Mexico and the United Arab Emirates and is being tested in parts of the United States and the United Kingdom. Amazon said it is also expanding same-day grocery delivery to more than 2,300 cities and towns across the U.S., while narrowing its food-delivery focus around Whole Foods Market.