Global e-commerce giant Amazon, which skipped any mention of its performance in India, said the growth in its cloud computing business has slowed as companies cut back spending in a tough macroeconomic environment.
In the January-March quarter, Amazon Web Services (AWS), which accounts for a bulk of the Seattle-based company’s revenue, saw its operating income fall 21 percent year-on- year (YoY) from $6.5 billion in Q1 2022 to $5.1 billion.
The unit’s net sales, however, grew 16 percent YoY from $18.4 billion in Q1 2022 to $21.4 billion in Q1 2023, beating analysts’ estimates.
Over the past months, Amazon CEO Andrew Jassy announced a series of job cuts, with employees at AWS being the latest to be affected.
In March, Jassy said Amazon would be cut 9,000 jobs across AWS, Twitch and others. That was over and above the 18,000 roles that Amazon said it would be eliminating after a hiring frenzy during the pandemic years. Employees in India, too, were likely to be impacted by these decisions.
Amazon’s revenue from international markets, outside North America, were up just 1 percent YoY at $29.1 billion in Q1 2023. Its operating losses, however, reduced 3 percent from $1.3 billion in Q1 2022 to $1.2 billion in Q1 2023.
Also read: Amazon jolts investors with talk of cloud growth slowdown
The India question
The management did not shed light on its performance in India in the current quarter. In February, amid talks of the e-commerce giant scaling back operations in Asia’s third-largest economy, Jassy, while announcing Q4 2022 results, said regions like India were the “right investments”.
“If you look at countries like India and Brazil and the Middle East…and a number of those types of countries, we like what we're seeing,” he said.
“They take a certain amount of time. There's a certain amount of fixed investment you have to make when you enter a new geography, and then you have to drive a certain amount of revenue to be able to cover that fixed investment. But they're all on the right trajectory…” he said.
The talk of downsizing operations in India comes as analysts at Bernstein pointed out that despite investing over $6 billion in India, Amazon was yet to achieve profitability in India and it looked difficult going forward as well.
Amazon has already shut units like Amazon Food and said that Amazon Academy would be closed down as well in a phased manner starting August 2023. Storm cloud
Overall, Amazon’s revenues rose 9 percent YoY to $127.4 billion in Q1 2023. Even its operating income rose 30 percent to $4.8 billion.
In the current quarter, Amazon expects net sales to be between $127 billion and $133 billion, growing 5-10 percent. At the same time, its operating income will likely be between $2 billion and $5.5 billion, broadly in line with analysts’ expectations.
“…healthy demand in everyday essentials, such as consumables and beauty,” but witnessed “moderated spending on discretionary categories as well as shifts to lower-priced items,” Amazon’s chief financial officer Brian Olsavsky told analysts.
When inflation trends higher, businesses tend to lower spends which likely hindered AWS’ growth.
“As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter. And we are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1,” Olsavsky said.
One basis point is one-hundredth of a percentage point.
AWS competes with the offerings of Microsoft and Google, which have also said they would be eliminating roles across divisions as demand for their services weakened.
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