Amazon’s cash-strapped Alexa division could face further cuts if an AI-powered voice assistant flops, BofA says

A lot is riding on the success of Remarkable Alexa. The Alexa division has struggled with profitability for years and reportedly lost $5 billion in 2022 alone. Two rounds of layoffs in late 2022 and 2023 helped halt the decline, but the latest AI push needs to translate into revenue quickly. Unnamed Amazon employees emphasized this all-or-nothing sentiment, telling Reuters that senior management has described 2024 as a “must-win” year for Alexa.

“If Amazon does not launch a paid version, we believe Amazon may further cut its investment in Alexa to reduce losses,” Bank of America analysts led by Justin Post also warned in a note on Monday.

Post and his team did a rough calculation to find out how much revenue Amazon’s AI-powered voice assistant could generate with the reported prices.

They found that while many Alexa devices are out of service, if just one in five devices is active with a single user, that would be 100 million active users. And if 10% of those users are willing to pay $5 per month for Alexa, that would generate $600 million in revenue for Amazon per year. At $10 per month, that number doubles to $1.2 billion.

This means that Amazon can expect between $600 million and $1.2 billion in additional revenue from an AI-powered Alexa, even with limited use. However, Post noted that these estimates are conservative for good reason.

There are a number of free alternatives to Remarkable Alexa, including ChatGPT, Google Assistant, Apple’s Siri and even the regular, free version of Alexa, which could turn customers off. “We believe Alexa’s capabilities need to improve to remain competitive with competitors’ AI advances,” Post wrote.

The analyst also said that in his opinion, “AI features could be more useful on a PC (or) phone than on a voice device such as a home speaker.”

Still, Post and his team remain optimistic about Amazon overall, arguing that plans for an AI-powered Alexa offering show that the company is “committed to improving the economics of Alexa.”

Other changes at Amazon, including new fees for ad-free Prime Video and adjusted fees for grocery deliveries, also indicate a “continued focus on profitability,” according to BofA, which should benefit share prices. Growth in Amazon’s advertising business should also boost profitability, said Post, who gives Amazon shares a “buy” rating and a 12-month price target of $210.

By 1:00 p.m. ET on Monday, the stock fell 0.98% to $187.51.

Amazon declined to comment on Bank of America’s research report, but issued the following statement about its plans for Alexa. “Our vision for Alexa remains the same – to build the world’s best personal assistant. Generative AI presents a huge opportunity to make Alexa even better for our customers. We’ve already built generative AI into various components of Alexa and are working hard to implement it at scale – in the over half a billion Alexa-enabled devices already in homes around the world – to enable even more proactive, personalized and trusted support for our customers. We’re excited about what we’re building and look forward to delivering it to our customers,” a company spokesperson said. Assets by email.

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