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Global Economy

Amazon increases profit sharply – share takes off after trading

The online giant Amazon has increased its profit sharply, but at the same time is groaning under high costs and weaker growth. Investors like the fact that the group wants to raise prices in the United States.

The world’s largest online retailer Amazon earned brilliantly in the Christmas quarter. The US group managed the announced cost avalanche due to the enormous need for personnel and high investments in delivery logistics better than feared – not least thanks to its highly profitable cloud business.

However, the growth outlook has clouded significantly after the e-commerce boom during the pandemic. Investors are still satisfied – also because Amazon is increasing prices in the US home market for the first time in years. The stock rose by around 18 percent in after-hours trading.

Amazon far exceeds expectations

The US group far exceeded profit expectations in the final quarter: the surplus was $14.3 billion (12.5 billion euros), almost twice as high as a year ago. The main reason for the strong increase, however, was Amazon’s stake in the electric car manufacturer Rivian, through which the group was able to post high special proceeds on its balance sheet when it went public in November.

Operating profit — which better reflects business performance — fell by almost half to $3.5 billion, Amazon said on Thursday after the US market closed.

Sales growth was also quite meager by Amazon’s standards. Revenue climbed 9 percent to $137.4 billion. For the current quarter, the company expects sales of between $112 billion and $117 billion, which would correspond to an increase of between three and eight percent over the previous year.

Analysts expected a higher forecast. On the other hand, Amazon’s cloud business with storage space and applications on the Internet continues to flourish. Flagship AWS grew revenue 40 percent to $17.8 billion for the quarter and posted a surprisingly high profit of $5.3 billion.

Amazon faces higher costs due to inflation and labor shortages

“As expected, we had higher costs, driven by tight labor markets and inflationary pressures,” said Amazon CEO Andy Jassy in the annual report. Due to the rampant omicron virus variant, these problems are likely to continue in the current quarter.

“Despite these short-term challenges, we remain optimistic,” the top manager continued. Three months ago, Amazon had already warned investors of additional billions in expenditure due to higher wages, global problems in the supply chain and increased freight costs and had prepared for meager numbers.

The company’s announcement that it would increase the prices for its “Prime” service in the USA for the first time since 2018 was well received by shareholders. The service, which offers access to free shipping and streaming services, among other things, is becoming significantly more expensive: from February 18, new US customers will pay $14.99 instead of $12.99 per month and $139 instead of $119 per year.

The new tariffs will take effect for existing customers in March. According to Amazon, no higher prices are initially planned outside the USA. However, there is plenty of scope here. In Germany, the “Prime” subscription has so far been significantly cheaper than in the USA at 69 euros per year or 7.99 euros per month.

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