December 3, 2023

For most of its history, Amazon has grown at an incredible, mind-boggling pace. Not so much anymore.

Amazon reported its first-quarter results on Thursday. Revenue rose 9%, unchanged from the previous quarter.

While slow by historical standards, those numbers looked pretty good to analysts with lower expectations when sales were likely up 40% from the previous year. Amazon shares, which have underperformed over the past 18 months, rose more than 10% in after-hours trading on Thursday, but pared gains as reality hit.

Revenue rose to $127.4 billion, while net income jumped to 31 cents a share, compared with a loss of 38 cents in 2022. Analysts had expected earnings of 21 cents a share on revenue of $124.55 billion.

“From my perspective, I think there’s something to like about the way our teams are serving customers and the results we’re starting to see,” Amazon CEO Andy Jassy said on a conference call with analysts.

The best-performing sectors were advertising, up 21%, and Amazon Web Services, up 16%. But revenue at the online store, which is Amazon’s core business for most consumers, fell by about $33 million.

Mr. Jassy spoke at length about how artificial intelligence will energize Amazon as a whole in the coming years — such as large language models and the generative AI they enable.

“Frankly, these models weren’t all that compelling about six or nine months ago,” he said. “They’re getting bigger, better, faster. It really presents a unique opportunity to transform almost every customer experience that exists, and many that don’t exist.”

Like other tech companies, Amazon did well in the early days of the pandemic when everyone stayed home, but has run into some trouble since. Management is scaling back spending after expanding its retail distribution network to handle an influx of new business.

Employment at the company has fallen by 10%, or 150,000 workers, since its peak in early 2022. Since November, the company has confirmed 27,000 job cuts in departments including human resources, retail and cloud computing. But warehouses and distribution networks saw the biggest declines.

Amazon Chief Financial Officer Brian Olsavsky (Brian Olsavsky) did not rule out further layoffs in a call with reporters on Thursday. “We will proceed adaptively,” he said.

Amazon’s big tech peers reported surprisingly good results this week after a brutal winter of layoffs, weak earnings and lower expectations. Shares of Facebook parent Meta snapped three straight quarters of declining revenue and rose 10%. Google’s ad search business performed better than expected, while Microsoft’s cloud computing business helped the company achieve impressive results.

For years, if not decades, Amazon has chosen growth over profits. Making money gives way to building new markets. Sometimes this is so effective that it changes the fundamental nature of the company. AWS is growing so fast that its profits largely make up for Amazon’s low returns in retail.

On the other hand, many small businesses remain small. When to close them is a decision Amazon can put off for years, but not any longer. Rising interest rates and undecided consumers have forced its hand.

This week, the company shut down its Halo line of health and fitness devices. Amazon has big ambitions in health care, but the fitness equipment market is fiercely competitive, and Halo hasn’t broken through. Amazon has also in recent days shuttered Book Depository, an online bookstore it acquired in 2011, which operates independently of its main bookselling division.

New horizons are calling.

“Healthcare is a multi-trillion dollar industry, it’s very fragmented and it’s really fragmented, especially in the US,” Mr Jassy said.

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