Takeaway: Relatively in-line Q and guide, but rate of change still trending negative and AWS seeing big rev/margin slowdown. Bearish Trend.

CEO Andy Jassy joined the AMZN conference call today, a very rare occurrence at Amazon as Bezos wasn’t on a conf call for over a decade at the end of his tenure. One of the reasons he cited was the unusual economic situation, props to him for being accountable to investors and getting on the call for some brief Q&A. The commentary and business trends continue to signal slowing growth and a slowing consumer.

AMZN print goes much as we thought.  Revenues ahead with a solid beat in North America retail. Growth slowed 700bps, the beat can be chalked up to overly conservative guidance and street modeling. Margins came in in line which was slightly better than our expectation, though the guidance is in line with our expectation on revenue (steady rate of change with top end implying 8% growth) the margin range looks more bearish than we, and the consensus, were expecting. 

AWS was weak as we outlined in our preview, revenue growth slowed 800bps to +20% and margins down 540bps also slowing from last Q. This was a new all-time low for growth in the AWS segment. The company noted that QTD AWS is tracking up mid-teens implying another large slowdown; given our current macro-outlook it wouldn’t surprise us to see growth drop into the single digits by 2Q23. Corporates are looking to cut costs.  We see the layoffs in the tech/big cap corporate space, Amazon wants to help them save where possible and foster strong long term relationships. But that means growth is headed lower, and the CFO, when teased by analysts to give an AWS guide for 2Q or beyond said “I'm not sure I can forecast for you with any level of certainty what is going to happen beyond this quarter… this is a bit uncharted territories economically”… a wise answer. 

As for retail trends, the NA segment slowed 700bps to +14%, partly due to the Prime Day shift help in 3Q. International also slowed 700bps to +5%. 3p continues to drive the retail growth, and reached 59% of transactions this Q. Management noted that the consumer is spending less on discretionary categories and is seeking out lower priced items and value brands. The consumer is getting weaker, and Amazon sees it. 

Gross profit slowed 220bps and given the slowdown in both revenue and high margin businesses, gross profit looks to slow in the upcoming quarters. The company continues to work on cost management; it took $640mm in charges in 4Q related to severance around the recent layoffs. Cost control and efficiency will remain a focus in 2023. EBIT flow-through might improve as the year progresses, but with revenue and gross profit having a high probability of slowing growth over the next 6 months, the multiple isn’t likely to expand and the fundamental TREND setup remains net bearish. If you have inside a 6 month duration, stay away or short. 

Ecosystem Callouts

Amazon’s recent investments in context.
It's important to remember that over the last few years, we've -- we took a fulfillment center footprint that we've built over 25 years and doubled it in just a couple of years.
And then we, at the same time, built out a transportation network for last mile roughly the size of UPS in a couple of years.

Grocery to remain a strategic focus.
We think grocery is a really important and strategic area for us. It's a very large market segment, and there's a lot of frequency in how consumers shop for grocery. And we also believe that over time, grocery is going to be omnichannel. There are going to be a lot of people that order their grocery items online and have it delivered to them, and there are going to be a lot of people who continue to buy in physical stores. But you're going to also see a hybrid of those, where people pick out what they want online and pick it up in stores, or people are in stores and there's something that's not in inventory in the stores, so they go to their app or to a kiosk and order it to be delivered from online. And so I think having omnichannel is going to really matter.

Management thinks Prime acquisition investments still worthwhile
Prime membership is -- remains strong and so has the dollars purchased per Prime member. It varies a bit by geography. But in general, if you step back, we had some very large video properties that we had launched last year, Thursday Night Football and Lord of the Rings: Rings of Power. Both of them had record sign-ups for Prime membership. And we know that, again, investments like that will help with not only a new member or new Prime member acquisition, but also retention. And we see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website.