Amazon has reported earnings on February 1, sending shares up in post-market trading after better-than-expected results. Advertising revenue in the quarter took a sharp 27% surge to $14.7 billion, easily above the Street consensus at $14 billion. Subscription revenue also remained 14% higher at $10.5 billion, a little ahead of the Street forecast at $10.3 billion. Amazon Web Services (AWS) revenue reached $24.2 billion, up by 13% in the quarter from a year earlier, in line with estimates.
Profits were $1 a share, beating the Wall Street consensus of 79 cents. Operating income was $13.2 billion, above the company’s guidance range of $7 billion to $11 billion.
The company attributed the growth in AWS revenue to the increasing demand for cloud services for artificial intelligence. In Q4 2023, AWS introduced the Q chatbot for developers and nontechnical corporate workers, along with the Trainium2 chip for training AI models.
The strong showing in the ad sale performance is an indicator of the digital advertising industry’s recovery following a challenging start in 2023, and is expected to instill confidence among marketers.
“We expect the acceleration to continue in 2024,” Brian Olsavsky, Amazon’s finance chief, said on a post-result press call.
Amazon CEO Andy Jassy emphasised the company’s achievements, citing record-breaking holiday sales and ongoing innovation in customer experience. Jassy highlighted advancements such as faster delivery speeds for Prime members, enhanced AWS features, and the positive impact of advertising services.
This Q4 was a record-breaking holiday shopping season and closed out a robust 2023 for Amazon,” Jassy said in a statement. “While we made meaningful revenue, operating income, and free cash flow progress, what we’re most pleased with is the continued invention and customer experience improvements across our businesses.”
“[…] Our advertising services continue to improve and drive positive results; our newer businesses are progressing nicely, and along with our more established businesses, collectively making customers’ lives easier and better every day. 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,” Jassy added.
Senior analyst at Forrester, Nikhil Lai, spoke to Campaign Asia-Pacific about Amazon’s “highly profitable ad business.” He said: “ The ad business generates high-margin operating income that offsets Amazon’s losses from first-party product sales, third-party seller fees, physical store sales, and subscription services.
“In Q4 2023, Amazon’s ad sales beat expectations due to continued strong demand for search ads on Amazon’s site and app,” he said
Lai further added that advertisers that sell on Amazon can verify the revenue impact of Sponsored Products ads and that, in turn, attract media budgets seeking high yield and direct responses at the bottom of the funnel.
“On the earnings call, Amazon’s CFO Brian Olsavsky mentioned Amazon’s use of machine learning to heighten the relevancy of Sponsored Products ads, which pressures sell-side retail media technologies like Criteo, CitrusAd, PromoteIQ, Koddi, and Moloco to heighten the relevance of advertising they deliver on retail media networks seeking to become scaled alternatives to Amazon,” said Lai.
2023: Highest operating profit in Amazon’s history in the holiday quarter
Despite the robust performance, Amazon has been trimming headcount across divisions, affecting employees at MGM Studios, Prime Video, Twitch, and Audible. Mike Hopkins, who oversees those units, said the company moved to make cuts to “prioritise our investments for the long-term success of our business.”
Beginning at the end of 2022 and continuing through 2023, Amazon has made the largest layoffs in its history, cutting more than 27,000 jobs across almost every area of the company.
In a move unrelated to the Q4 report, Amazon has introduced default ads on Prime Video content in major markets, offering an ad-free experience for an additional fee. The company aims to provide fewer ads than traditional TV and other streaming platforms. Early performance metrics for this new revenue stream will be included in the upcoming Q1 2024 report.
Amazon shares were up 7.5% in after-hours trading following the report, with regular U.S. stock markets set to reopen on Friday at 9:30 a.m. ET.
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