The e-commerce giant – Amazon’s cloud computing business and e-commerce services are feeling the punch of the fear of imminent recession. It expects to report the slowest growth in more than twenty years. As per the recent information available from the best US news websites, the recession fears denting enterprise and consumer spending and it directly affects e-commerce services worldwide.
Expects to report a growth of just 6% YoY
Amazon is expected to report YoY sales growth of just 6% to $145.7 billion. According to Wall Street forecasts, the revenues from the online stores, which include digital media content (DMC) and product sales on its flagship site, are expected to contract by 1%.
After benefiting from expansion during the COVID era, Amazon is experiencing the most difficult period in its business. Its operating expenses surged more than the sales reported in North America in the first three quarters of the previous year.
Measures to reduce capital spending
As part of its efforts to lower capital spending, Amazon closed its specialty stores and physical bookstores in early 2022. It also slowed the opening of its warehouses to rein in spending. The company’s workforce at its warehouses surged by 800,000 during the period between 2019 and 2021. Amazon announced plans to retrench over 18,000 employees at its corporate headquarters.
Amazon reported a loss in its market value to over $830 billion in 2022 because its shares declined by 50%. However, its shares staged a smart recovery in 2023, gaining 25% as of Wednesday. An analyst at Evercore ISI, Mark Mahaney, said Amazon is taking measures to protect its bottom line and rein in its costs. Cloud computing and online retail sales on Amazon have signaled slower growth.
Net profits decline to $2 billion
Amazon’s net profit is expected to decline from $14.3 billion in 2022 to $2 billion in 2023. The previous year’s profits included gains of $12 billion from its investments in Rivian Automotive Inc., which is engaged in the manufacture of EVs.
Amazon bets big on its AWS (Amazon Web Services), the cloud computing platform, to realize handsome profits at a time when it was reeling from disappointing e-commerce sales. Since the customers of AWS also focused on cost-cutting measures, the sales executives of Amazon said growth in AWS sales slowed down.
It’s today’s breaking news, Microsoft Corp., a rival of Amazon, also posted lower growth in its January report. It is the slowest growth in over six years because of the cooling demand for cloud services and software.
Rapid growth in the advertising business
Amazon’s advertising business is expanding rapidly. The company expects to reap huge profits from the advertising segment, which reported a growth of 25% in Q3. Andy Jassy, CEO of Amazon, has indulged in cost-cutting measures to bring the company back on the path to profitability. The company closed certain non-core projects, such as the AmazonSmile charitable program and the Amazon Care telehealth unit. It has also increased the fee for free grocery delivery to $150 from $35.