• by Sarah Mahoney  @mahoney_sarah, February 2, 2024

Amazon’s fourth-quarter financial results hit plenty of high notes, with the fastest sales growth in a year. Profitability also improved more than expected. After introducing new tools for advertisers, quarterly ad sales soared 27% to $14.65 billion. It announced a new step into generative AI with Rufus, a shopping assistant that promises to shake up how customers currently find their way to Amazon purchases.

Net sales for the fourth quarter climbed 14% to $170 billion, compared to $149.2 billion in the fourth quarter of 2022. Sales in North America rose 13% to $105.5 billion. AWS, the cloud computing division, also did well, gaining 13% to $24.2 billion.

High-flying profits are delighting investors, with operating income soaring to $13.2 billion, compared to $2.7 billion in the fourth quarter of 2022. “Year-over-year operating margin has expanded for four consecutive quarters driven by fulfillment efficiencies, ongoing cost discipline across segments, and a continued mix shift to high-margin advertising and AWS revenue,” writes Scott Devitt, an analyst who follows Amazon for Wedbush. “The magnitude of operating profit growth in the fourth quarter further validates the strength of Amazon's underlying margin trajectory.”

Amazon’s growth in retail was healthy enough to put to rest those “But what about Temu?” doubts. Yet it’s the rapid growth -- and increasing profitability -- of both AWS and ad sales that are getting most of the attention.

“Advertising continued to blow past even the most bullish expectations, up 27% year over year,” writes Mark Shmulik, an analyst who covers Amazon for Bernstein. He notes those advances primarily came from product/branded search, but that video ads are quickly becoming an important contributor across live sports, Prime Video, Fire, Twitch, and FreeVee.

And thanks to regionalization efforts, Amazon’s cost to serve those ads declined $0.45 per unit, year over year, “the first cost-to-serve reduction since 2018.”

To help brands connect with customers, Amazon says it has introduced new ad tools that include a generative AI solution to produce lifestyle imagery and make ads more engaging; a sponsored TV offering that lets brands run streaming TV ad campaigns with no minimum spend on Amazon Freevee, Twitch, and third-party streaming services; and new capabilities that include enhanced audience insights and optimization controls.

Other highlights for the quarter included new retail sales records for Black Friday and Cyber Monday, and a 24% increase in total viewership for “Thursday Night Football” on Prime Video. Programming from Amazon MGM Studios earned 16 Golden Globe nominations, 68 Emmy nominations, nine wins. "American Fiction" garnered five Oscar nominations.

For the coming quarter, Amazon forecasts net sales between $138 billion and $143.5 billion, a gain between 8% and 13%. It predicts operating income between $8 billion and $12 billion, compared with $4.8 billion in the first quarter of 2023, considerably higher than observers expected.

Rufus is currently in beta testing, and Amazon says it has trained the expert shopping assistant on Amazon’s product catalog and information from across the web. It intends to roll Rufus out to additional U.S. customers in the coming weeks.

In its announcement, Amazon says it believes generative AI will “change virtually all customer experiences that we know” and mentions the many ways the company has pioneered AI in the past 25 years. And in the last year, it has deployed generative AI  in multiple innovations, like quickly summarizing thousands of reviews.

Shoppers can ask Rufus the questions they likely already ask Google, such as “What to consider when buying headphones?” or “What are clean beauty products?” and receive helpful information to guide their shopping mission.

Experts think the innovation may strike shoppers as more evolutionary than revolutionary. “We’ve already seen how genAI is quickly changing and improving digital commerce,” says Nicole Greene, an analyst and vice president at Gartner. “It’s made a fast impact on user experience by enhancing creativity, insight, personalization and conversational experience by helping to unlock the data from things like search, analytics, tags and rules to provide better customer experiences.”

Rufus, she tells Marketing Daily, “is an evolution of the application of the technology, leveraging the vast amounts of first-party data that Amazon has to unlock creative ways to make shopping faster and easier.”