Even after the loss-making year, Amazon has great potential for future profitability growth.
Amazon is experiencing a hangover after a protracted period of soaring earnings from the pandemic-era shopping frenzy. The massive retail and technology company reports its first loss-making year since 2014.
The year 2022 had a net loss of $2.7 billion (R46.16 billion), which was the company’s worst financial year since 2000.
The results showed a big change over the previous year when it reported a net income of $33.4 billion (R570.99 billion).
Amazon is also witnessing a slowdown in growth in its main revenue stream, the cloud computing industry, as businesses cut back in response to high inflation and interest rates.
When questioned by reporters about the lull at AWS, Chief Financial Officer Brian Olsavsky said: “We are in our primary Amazon business, so we are aware that everyone is attempting to reduce their spending. For the upcoming few quarters, we do anticipate some slower growth rates.”
Despite reporting a financial loss in 2022, the worldwide e-commerce behemoth Amazon is largely regarded as one of the greatest business achievements of the contemporary era. Jeff Bezos founded Amazon in 1994, and since then it has grown rapidly to dominate nearly half of the online retail market.
The business expanded from an online bookstore to become one of the biggest e-commerce businesses in the world. Several significant turning points in Amazon’s financial history over the past 20 years have shaped the company’s extraordinary development trajectory.
Amazon’s prior profitability was supported by its tremendous revenue growth over the previous decade, even though it wasn’t profitable in 2022. The company has seen its sales increase because of its market expansion, the introduction of cutting-edge goods and services, and the use of scale efficiencies to gain a competitive edge.
It can maintain strong profits while offering low pricing by managing costs with still having revenue increases. Efficiency in operations, the use of technology, a minimal inventory, and investments in automation tools are used to achieve this cost management. Amazon can also profit from marketing services or cloud computing services provided by third parties because of the size of its customer base.
The e-commerce company has experienced rapid growth in both its sales and profitability over time. Amazon reported $596 million in net income and $107 billion in revenue for 2015. These numbers considerably increased by 2018, reaching $233 billion in revenue and $10 billion in net profits, respectively.
Additionally, from $12 billion in 2015 to $30.7 billion in 2018, operating cash flow increased. This rise was mostly attributable to cost-cutting initiatives and Amazon’s capacity to boost efficiency by utilizing its size and infrastructure.
It is still looking for ways to break into new areas and create cutting-edge products, as evidenced by its acquisition of Whole Foods or its involvement in the cloud computing sector. Another reason Amazon is so successful and profitable is because of its advanced algorithms, which have allowed it to remain competitive in providing prices that customers can trust while yet keeping costs down.
Both the traditional retail business and the e-commerce industry have been greatly impacted by Amazon. The size and scope of the e-commerce business were substantially less before Amazon’s rise. With its ease and user-friendly offerings, its’ online platform made it possible for businesses to reach a substantially bigger customer base.
Furthermore, it gave vendors strong tools for controlling inventories, handling payments, and executing orders that facilitated quick business expansion.
Retailers have been compelled to use digital platforms in order to provide more competitive pricing as a result of the tremendous success of Amazon’s e-commerce platform. More businesses are adopting technology-based services as an essential component of their business operations as a result of the constant shift away from traditional brick-and-mortar stores and practices and toward online commerce.
Amazon must deal with increased expenses for consumer services like delivery fees as well as potential government regulation due to the company’s dominant market position.
Furthermore, the corporation is under criticism from labor groups who point to long work hours, low pay, and a lack of job security as reasons for the company’s constantly declining profit margins as a result of investments in new goods and services.
Despite these challenges, the company is economically well-positioned, which should enable it to continue being productive and successful in the future.
Major reasons behind the loss-making year of Amazon
The desire for internet shopping looked to promise exponential development during the epidemic, and many people thought the behavioral changes may be long-lasting.
Amazon’s profits doubled and continued to increase as it struggled to find workers and build facilities quickly enough. Later, though, when inflation increased, people started to shop again in actual stores, shifted from staying in to going out, and came less willing to spend.
Amazon started to reevaluate its plans for warehouse growth. Industry reports monitored delays, closures, and cancellations. Andy Jassy stated that reducing expenses in the business’ operations was his main objective during a rare appearance as Amazon CEO on a quarterly call with investors.
Amazon was a great example of a business that used extremely low loan rates to finance its expansion. The business now earns enough cash to avoid using the credit markets, but expansion is still a primary priority.
The company’s significant investment in the electric automaker Rivian, whose value fall last year and ate into Amazon’s bottom line, was by far the main reason for the company’s losses over the course of the year.
Amazon has started distributing Rivian’s electric delivery trucks after purchasing a 20% share in the automaker. Rivian conducted one of the biggest initial public offerings in American history to imitate Tesla’s success. But in the previous year, the euphoria subsided, the automaker made price errors, and it missed growth objectives. Its share price decreased by 82%.
Amazon’s investment loss occurs just as it must reevaluate its strategy in the wake of a pandemic-era increase.
Amazon still makes investments in new businesses. The business is attempting to finalize its $4 billion acquisition of the One Medical chain of primary care facilities. To entice more individuals to the program, it also introduced a $5 subscription service for generic prescription drugs for its paying Prime customers.
Separately, the business must wage a drawn-out battle against a fledgling unionization drive. Amazon’s attempt to reverse the first-ever union victory at a Staten Island facility was unsuccessful last month. Government labor regulators gave the business the go-ahead to start negotiations with the Amazon Labor Union. But the case will probably end up in court.
Federal inspectors from the Occupational Safety and Health Administration (OSHA) have recently issued Amazon several citations for safety infractions. This relates to six storage facilities in the states of Colorado, Florida, Idaho, Illinois, and New York.
The twisting, bending and lifting that Amazon warehouse workers undertake up to nine times every minute puts them at a high risk of lower back injuries and other harm. A spokeswoman for the company stated that the claims did not “reflect the reality of safety at our facilities” and that they planned to appeal.
Amazon announced job cuts of around 18,000 people last month; according to the media, those affected worked for the company’s AWS, healthcare, payments, real estate, and delivery businesses, among other divisions.
The company is laying off employees after embarking on a hiring binge during the Covid-19 outbreak. The company’s global employment would rise to about 1.6 million by the end of 2021 from 798,000 in the fourth quarter of 2019.
To remain competitive, the corporation, which is the second-largest private employer in the country, increased the average beginning salary for American warehouse and delivery workers from $18 to $19 per hour in October.
Amazon still has a lot of room for future profitability growth, despite the recent profit margin decreases brought on by increased competition and costs associated with launching new projects and investments.
edited and proofread by nikita sharma