Amazon Able to Maintain Sales While Spending Slows
Amazon.com Inc. has shown that its e-commerce and cloud-computing businesses can generate revenue even as consumers struggle with inflation and the company takes measures to cut costs. Resulting in Amazon shares increasing by more than 12% in pre-market trading on Friday.
Second-quarter sales reported Thursday, topped analysts’ estimates and gave an impressive revenue forecast of 17% growth in the current period.
Chief Executive Officer Andy Jassy is making efforts to unwind a pandemic-era expansion that left Amazon with a surplus of warehouse space and employees. Fulfillment expenses increased 14% to $20.3 billion. This was the same as for the previous three-month period, and less than analysts predicted. Simultaneously, the former Amazon Web Services leader will spend money on the profitable market-leading cloud unit to take advantage of the potential for growth.
“Despite continued inflationary pressures in fuel, energy and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” - Andy Jassy (CEO Amazon)
Chief Financial Officer Brian Olsavsky has said that Amazon added jobs at its slowest rate since 2019. It currently employs more than 1.52 million full and part-time workers. Its total workforce has declined by 100,000 compared to the previous quarter. Capital expenses on warehouses and transportation have decreased, but they are spending more on AWS, including for engineers and data centers.
“We know AWS is a huge opportunity” - Brian Olsavsky(CFO Amazon)
AWS generated sales of $19.7 billion in the period ended June 30, beating analysts' estimate of $19.4 billion.
Amazon constitutes 34% of the nearly $55 billion market for cloud infrastructure services, according to Synergy Research Group. Advertising services also increased 14% to $8.76 billion.
With inflationary pressures, in February Amazon increased the price of a Prime membership in the U.S., and this week had similar increases in Europe. Consumers didn't react negatively. Subscription revenue rose 14% to $8.72 billion and this reversed three consecutive quarters of slowing growth.
“The next two quarters feature Prime Day events that should recharge e-commerce momentum. This will boost growth and reduce membership churn, while giving a jolt to the advertising business that’s increasingly responsible for Amazon’s bottom line. It looks like Amazon is finally primed to turn the corner after a rocky couple of quarters.” - Andrew Lipsman (analyst at Insider Intelligence)
Given that online sales have been slowing, Jassy is looking for new sources of revenue. Amazon announced at the start of the month, that it would buy primary-care company One Medical in a cash deal with an equity value of $3.49 billion. This furthers Amazon’s push into the health care industry.
This quarter, sales increased 7.2% to $121.2 billion. Amazon reported a net loss of $2 billion, or 20 cents a share, compared with net income of $7.8 billion, or 76 cents a share, in the quarter a year ago. The loss was attributed to its investment in electric-vehicle maker Rivian Automotive Inc.
Operating income in the current quarter will range from break-even to $3.5 billion on sales that may be as much as $130 billion, the company said. Analysts, on average, projected a profit of $3.83 billion on sales of $127 billion, according to data compiled by Bloomberg.
Shares rose to a high of $139.39 in extended trading after closing at $122.28 in New York. The shares have dropped almost 27% this year after bearish conditions in the market broadly.