Amazon CEO outlines 'unusual growth' outlook for AWS, advertising
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In an annual letter to shareholders released on Wednesday evening, Amazon (NASDAQ:AMZN) CEO Andy Jassy voiced optimism on long-term prospects despite near-term pressure.
He highlighted the AWS as a key revenue driver, reaching an $85B annualized revenue run rate. However, Jassy still sees AWS as âstill early in its adoption curve.â He explained that the short-term headwinds confronting the segment at present drag on profitability, but should serve to keep customers onboard as the business continues to grow.
âWhile some companies might obsess over how they could extract as much money from customers as possible in these tight times, itâs neither what customers want nor best for customers in the long term, so weâre taking a different tack,â he wrote. âIn AWS, like all our businesses, weâre not trying to optimize for any one quarter or year. Weâre trying to build customer relationships (and a business) that outlast all of us; and as a result, our AWS sales and support teams are spending much of their time helping customers optimize their AWS spend so they can better weather this uncertain economy.â
He added that the management team continues to âlike a lot of the fundamentalsâ in the business and sees a strong new customer pipeline despite the aforementioned economic overhang. Additionally, Jassy said the company will continue to invest in the business to maintain a leadership position, with machine learning-focused chips a highlight.
âOur Inferentia2 chip, which just launched, offers up to four times higher throughput and ten times lower latency than our first Inferentia processor. With the enormous upcoming growth in machine learning, customers will be able to get a lot more done with AWSâs training and inference chips at a significantly lower cost,â he explained. âWeâre not close to being done innovating here, and this long-term investment should prove fruitful for both customers and AWS. AWS is still in the early stages of its evolution, and has a chance for unusual growth in the next decade.â
Elsewhere, he pointed to grocery and advertising business as areas of âunusualâ growth in coming years. Jassy noted the âbrisk clipâ at which advertising revenue is growing, rising 25% from 2021 to 2022. That pace has come despite a slowdown in advertising spend more broadly. Meanwhile, grocery is expected to accelerate sharply in coming years, with profitability improvements anticipated to bear fruit as Amazon Fresh and Whole Foods expand throughout the country.
âOver the past year, weâve continued to invest in the business while also making changes to drive better profitability,â Jassy wrote. âWhole Foods is on an encouraging path, but to have a larger impact on physical grocery, we must find a mass grocery format that we believe is worth expanding broadly.â
He concluded that the overall business will âemerge from this challenging macroeconomic time in a stronger position,â especially as global IT and consumer spending recovers.
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