Dive Brief:

• Amazon’s Q4 online retail sales rose 9% year over year to $70.5 billion, with physical store sales up 4% to $5.2 billion. Services were even stronger in the period, with third-party seller fees up 20% to $43.6 billion, advertising up 27% to $14.7 billion, and subscription fees up 14% to $10.5 billion.

• Worldwide shipping costs grew 11% to $27.3 billion. Total company net sales, including its AWS cloud services, rose 14% to $170 billion. Net income reached $10.6 billion from $278 million a year ago.

• The e-commerce giant unveiled a new generative AI-powered shopping tool dubbed Rufus, which “launched in beta to a small subset of customers and will progressively roll out to the rest of Amazon’s U.S. customers in the coming weeks.”

Dive Insight:

Starting over a year ago, Amazon has made some painful cost cuts, including laying off tens of thousands of employees. Many of them were in the e-commerce giant’s retail operations, including a little over 30 more people who are losing their jobs with its Buy With Prime business this year.

That has done wonder’s for the company’s bottom line. 

“Over the past year or so, we believe that Amazon has been highly disciplined in getting its house in order by cutting out initiatives and operations that were not delivering the numbers,” GlobalData Managing Director Neil Saunders said in emailed comments. “This has been invaluable in permitting margin expansion and improved profitability.”

That included the operation supporting voice assistant Alexa, which downsized in November. At the time, Amazon said it was focused more on generative AI. On Thursday, speaking with analysts, CEO Andy Jassy said that newly launched Rufus “represents a significant customer experience improvement for discovery” and that, including its AWS cloud services, generative AI will “ultimately drive tens of billions of dollars of revenue for Amazon over the next several years.”

“We're at the start of what Rufus will do with further personalization and expansion coming, but we're excited about how it will make discovery even easier on Amazon,” he said. “GenAI is and will continue to be an area of pervasive focus and investment across Amazon, primarily because there are a few initiatives, if any, that give us the chance to reinvent so many of our customer experiences and processes.”

While executives described higher promotions during the holidays in retail, Roth MKM Managing Director Rohit Kulkarni noted that they didn’t flag a tough consumer environment or the war between Israel and Hamas. When it comes to margins, Kulkarni noted “several catalysts lining up ahead, including ... ongoing regionalization efforts, ... Prime Video ads and off-Amazon ads.”

Amazon “reported an impressive 4Q beat with accelerating trends across all three pillars of Internet, e-Commerce, Advertising & Cloud,” Kulkarni said.