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A booming economy and a persistent virus are beginning to weigh on Amazon’s retail business even as its cloud computing business grows and an investment boosts profits.
The company, whose profits, headcount and share price soared two years ago as Covid forced people to stay at home, said on Thursday Operating income in the fourth quarter fell to $3.5 billion, roughly half of the $6.9 billion it earned in the fourth quarter of 2020.
“As expected during the holidays, we saw higher costs from labor supply shortages and inflationary pressures, and these issues continued in the first quarter due to ohmron,” Amazon CEO Andy Jassy said in a statement.
But net income rose sharply thanks to what Amazon calls a “pre-tax valuation gain.” Rivian Automotive, an Amazon investment that went public in the fourth quarter. Amazon owns about 20 percent of the electric vehicle manufacturer.
This brought net income to $14.3 billion compared to $7.2 billion a year ago. The company said net income would have fallen to $2.5 billion without Rivian. Revenue rose to $137.4 billion, slightly below analysts’ expectations.
Amazon controls about 40 percent of the e-commerce market, but this business – where it started and is still the best known – is increasingly the weakest part of the company. Online retail sales remained essentially flat in the fourth quarter of 2020.
“Growth is slowing, no doubt,” said Tom Johnson, Mindshare Worldwide global chief digital officer, in a note. Comparisons with hyper-growth quarters from the start of the pandemic, supply chain issues with knock-on effects on ad spend, and ongoing additional costs all conclude that the period of accelerated growth is over.”
AWS, Amazon’s cloud division, boosted its usual impressive performance, with operating revenue increasing 49 percent. Advertising revenue increased 37 percent to $9 billion. The annual sales of Twitter, which derives the majority of its revenue from advertisements, are below $5 billion in comparison.
Amazon said it increased the annual price of its Prime shipping club from $119 to $139 to offset its increased costs. The company said the 17 percent increase was the first Prime increase since 2018.
During regular trading on Thursday, Amazon shares fell 8 percent as investors worried about what to expect. After the earnings announcement, however, investors focused on the good news and rallied Amazon shares by nearly 17 percent hours later, before starting the slide.
Andrew Lipsman, principal analyst at research firm Insider Intelligence, attributed Wall Street’s optimism to two things.
“The price increase for Prime membership and the continued acceleration in AWS growth and this has had an increasing impact on profitability,” he said. “Given the extraordinarily difficult comparisons to the fourth quarter of 2020 years ago, the slowdown in e-commerce may be somewhat of an excuse.”
Amazon added 140,000 workers during the quarter, providing a total of 1.6 million employees. This increased 24 percent in one year. Walmart, the largest non-governmental employer in the United States, has 2.2 million employees.
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