by Amazon CEO Andy Jassy first joined the company’s conference call with analysts and investors on Thursday afternoon, saying he plans to do so “from time to time in the future.”
His predecessor, Amazon founder Jeff Bezos, traditionally left quarterly earnings releases to the company’s CFO, and Jassy had continued the tradition until now.
“Given that this last quarter marked the end of my first full year in this role, and given some of the unusual areas in the economy and our business, I thought this could be a good place to start,” said Jassy.
His surprise performance followed a quarter in which Amazon’s profit fell to $278 million from $14.3 billion a year earlier, including charges related to the layoff of 18,000 employees and other declines at its business.
Jassy kicked off the ensuing Q&A with a few warm-up swings, addressing an analyst’s question about the company’s priorities by explaining that Amazon will be “insanely focused on customer experience” and its long-term strategic investments, even at what appears to be cost optimize in the short term.
But he quickly went into some meaningful details. Here are the highlights.
Jassy described the four-part test Amazon uses to evaluate companies and opportunities, and identified some of the non-core companies he believes pass the test.
Those are the questions the company is asking, he said.
- Could the company get big enough to “move the needle” in the context of the broader company? This is “a high bar in a place like Amazon,” Jassy said.
- Is it in an area that is already well served by others?
- Does Amazon have a differentiated approach?
- Does Amazon have any expertise in this area, or could it be quick to acquire some?
Jassy specifically named several businesses the company will continue to invest in despite its cuts: streaming entertainment, appliances, Project Kuiper’s satellite internet business, and healthcare. These are in addition to the core businesses of online and brick-and-mortar stores, Amazon Web Services and advertising.
He acknowledged that it’s obviously unlikely that all of Amazon’s investments will be successful.
“However, it only takes one or two of them to become Amazon’s fourth pillar for us to become a very different company over time,” he added. “We will think very carefully about how we optimize our costs … but we will also continue to invest for the long term.”
Reducing fulfillment and delivery costs is the top priority of Amazon’s core North American e-commerce business, Jassy said.
This claim by Jassy came after Amazon’s operations Loss in its North American stores segment was $2.8 billion for full year 2022 compared to an operating store benefit from $7.3 billion in 2021.
Jassy said it’s important to remember that Amazon “doubled the size in just a few years” of a fulfillment center that took 25 years to build. At the same time, the company was building a last-mile delivery network that he described as “about the size of UPS.”
“To make these work, we needed everything we had,” he said. “Therefore, there is a lot to discover about how to optimize and make it more efficient and productive.”
Jassy said he was pleased with progress in the fourth quarter, when the operating loss in the North American business was $200 million, about the same as last year’s result.
Jassy said food remains an “important and strategic area” despite cuts.
This comes as Amazon said it decided to exit some Amazon Fresh and Amazon Go physical retail locations with little growth potential, taking a $720 million impairment for lease exits and other costs.
Grocery is a very large segment of the market where customers shop with high frequency, Jassy said, explaining at a high level why Amazon still sees this as an area worth investing in.
He said the company is increasingly viewing groceries as an omnichannel business, including online ordering and in-person pickup, as well as other combinations that bridge the physical and digital shopping experience.
Amazon is still experimenting “a bit” in its Amazon Fresh stores to differentiate them in the market, Jassy said, adding that the company has decided not to expand physical Amazon Fresh stores “until we get that equation.” have differentiation and commercial value that we like.”
Referring to the Whole Food Markets chain, which Amazon acquired in 2017, Jassy said he “really liked the progression [Whole Foods] has gained profitability over the past year.”
Amazon Web Services is focused on long-term growth, not short-term results.
Cautious customers cut Amazon’s cloud growth in half. Revenue growth of 20% in the fourth quarter versus 40% growth a year ago. Amazon CFO Brian Olsavsky said growth slipped into the “mid-teens” in January.
Jassy, the former CEO of AWS, said Amazon will help cloud customers adapt to the uncertain economy by finding ways to spend less in the short term.
“We’re not focused on optimizing in a quarter or a year,” he said. “We’re trying to build a series of relationships and deals that will outlast us all.”
