Amazon is still growing—but not as fast as it did last year. And that has everything to do with the decelerating US economy.
When Amazon reported its first-quarter earnings yesterday (April 27), it disclosed that both companies and consumers are spending less—the former on Amazon’s cloud services and the latter on online shopping.
At 16%, first-quarter growth in Amazon Web Services (AWS)—the cloud computing unit that has long the company’s biggest profit-driver—was much slower than the 37% that Amazon reported a year ago. Andy Jassy, Amazon’s CEO, had warned of this in his annual shareholder’s letter released in early April. In April, Amazon said in a call with investors, AWS growth slowed further still, to 11%.
On Amazon’s online store, e-commerce sales were flat in the first three months of the year, compared to the same period a year ago.
Two ways in which e-commerce shoppers are changing, according to Amazon
💰 Shoppers have become more conscious about their spending amid rising living costs
🏬 Several shoppers have returned to in-store shopping in the post-pandemic world
Quotable: Amazon is helping businesses spend more cautiously on AWS
“[T]he reality is that the way that we’ve built all our businesses, but AWS in this particular instance, is that we’re going to help our customers find a way to spend less money. We are not focused on trying to optimize in any one quarter or any one year, we’re trying to build a set of relationships in business that outlast all of us. And so if it’s good for our customers to find a way to be more cost effective in an uncertain economy, our team is going to spend a lot of cycles doing that. And it’s one of the advantages that...when it turns out you have a lot more demand than you anticipated, you can seamlessly scale up. But if it turns out that you don’t need as much demand as you had, you can give it back to us and stop paying for it. And that elasticity is very unusual.”
— Amazon CEO Andy Jassy, on the first-quarter earnings call
It’s not just Amazon: Businesses are spending less across the board
Overall US GDP growth in the first quarter of 2023 has, at 1.1%, slowed drastically from 2.6% in the last quarter of 2022. As Quartz’s Nate DiCamillo pointed out, the slowdown was caused by companies easing off on additions to their inventory and investments in structures and equipment. AWS was no exception to this trend.
However, in the face of growing competition from the likes of Microsoft and Google, Amazon claimed it was confident of staying ahead of its rivals. The company is “adding more dollars” in generative AI, according to Brian Olsavsky, Amazon’s CFO, which is expected to drive its next growth phase even in cloud.
By the digits: Amazon’s first-quarter earnings
9%: The rate at which Amazon’s revenue grew in the first quarter, to $127.4 billion, up from $116.4 billion during the same period the previous year
23%: The jump in Amazon’s ad revenue business.
11%: The early rise in Amazon’s share price after earnings were released, only to be followed by a drop of more than 2% after the earnings call with analysts
10%: The shrinkage in Amazon’s workforce from a year ago, due to the company cutting headcount by over 75,000
Charted: AWS is still the world’s biggest cloud provider
☁️ How Amazon’s AWS hires for and develops hard-to-find cloud skills
🌐 A total Amazon cloud outage would be the closest thing to the world going offline