Amazon’s cash-bleeding Alexa division could face further cuts if the AI-powered voice assistant takes off, BofA said.
Amazon is aiming to capitalize on its struggling Alexa division with a new plan to offer customers an AI-powered version of the voice assistant for $5 to $10 a month. Called “Alexa Remarkable,” the enhanced offering will provide a more personalized experience for customers and can perform more complex tasks than the free Alexa versions, including writing emails, ordering food, and even making coffee after the morning alarm (at least if you’re connected smart-device), Reuters first reported.
There’s a lot riding on Alexa’s incredible success. The Alexa segment has been struggling with profits for years, reportedly losing $5 billion in 2022 alone. Two rounds of layoffs in late 2022 and 2023 have helped stem the bleeding, but the recent push for AI will need to translate into revenue sooner. Underscoring this do-or-die sentiment, unnamed Amazon employees said Reuters CEOs have called 2024 the “must-win” year for Alexa.
“If Amazon does not see the acceptance of the paid category … we think that Amazon can reduce the investment of Alexa to reduce losses,” Bank of America analysts, led by Justin Post, also warned in a note on Monday.
Amazon did not immediately respond to a request for comment.
Post and his team did back-of-the-napkin calculations to figure out how much revenue Amazon’s AI-powered voice assistant could generate at reported rates.
They found that while most Alexa devices are inactive, if just one in five are active with a different user, that would translate to 100 million active users. And if 10% of those users are willing to pay $5 a month for Alexa, that would give Amazon $600 million a year in revenue. At $10 a month, that number doubles to $1.2 billion.
This means that Amazon can expect between $600 billion and $1.2 billion in incremental revenue from AI-powered Alexa, even if it’s only a limited acquisition—but the Post noted that these estimates don’t change for a reason.
There are many free alternatives to Alexa, including ChatGPT, Google Assistant, Apple’s Siri and even the regular, free version of Alexa, which can draw customers away. “We think Alexa’s capabilities will need to improve to keep up with AI advances from competitors,” Post wrote.
The analyst also said he believes “AI functionality may be more useful on a PC/phone versus a voice device such as a home speaker.”
However, Post and his team remain firm on Amazon as a whole, arguing for plans to offer AI-powered Alexa shows that the company is “determined to improve the economics of Alexa.”
Other changes at Amazon, including new payments for ad-free Prime Video and adjusted grocery delivery fees, also suggest a “continued focus on profitability” that should benefit share prices, according to BofA. Growth in Amazon’s advertising business should also boost profits, said the Post, which has a “buy” rating and a 12-month price target of $210 on Amazon shares.
The stock was down 0.98% to $187.51 by 1 pm ET on Monday.
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