Amazon's heavy responsibility for earnings and Wall Street guidance

Amazon’s heavy responsibility for earnings and Wall Street guidance

Amazon shares rose more than 10% in after-hours trading on Thursday after beating revenue expectations and offering a rise in guidance for the rest of the year as the company limited e-commerce costs and benefited from strong demand for its cloud computing business. .

Amazon said it expected to return to double-digit quarterly revenue growth now that year-over-year comparisons with the periods affected by the coronavirus pandemic in 2020 and 2021 had passed.

Strong performance from its Amazon Web Services cloud business and fast-growing advertising arm were credited for better-than-expected revenue, offsetting a further year-on-year decline in online store sales.

Amazon said its capital investments will reflect these demand adjustments, spending more on building cloud infrastructure than on e-commerce logistics for the rest of the year.

The results cemented a generally positive week for large-cap tech stocks. Alphabet, Microsoft and Apple are trading higher as their results reassured investors who feared the effects of difficult macroeconomic conditions. One exception was Meta, which is down 7% on the week, after suffering its first quarterly decline in revenue.

Amazon said it expects overall revenue in the current quarter to be between $125 billion and $130 billion, which would represent growth of 13 to 17 percent. It included sales from the Prime Day discount event, which took place earlier this month. Last year’s Prime Day was in the second quarter.

Overall sales rose 7% year-on-year to $121.2 billion, higher than the $119 billion expected by analysts, according to FactSet data. AWS revenue hit $19.7 billion, up 33% from a year ago and slightly above what Wall Street had expected. Amazon’s ad business also outperformed, rising 18% to $8.8 billion.

Amazon’s strong performance in the cloud and advertising offset a second consecutive quarter of declining sales at its online store, which fell 4% year-on-year to $50.9 billion. Analysts had forecast sales of $51.8 billion.

The company recorded an overall net loss of $2 billion, due to the poor performance of its investment in electric vehicle company Rivian, which cost Amazon $3.9 billion in non-operating costs.

Amazon’s operating profit for the quarter was $3.3 billion, compared to $7.7 billion in 2021.

“Amazon’s strong sales growth of 7%, 10% in North America alone, is entirely due to growth in services such as AWS and advertising,” noted Guru Hariharan, chief executive of the platform. – e-commerce management form, former CommerceIQ and Amazon framework. “The drop in online store sales reveals how the e-commerce giant is still under macroeconomic pressures.”

While other online advertising players, such as Meta and Alphabet, have said they are feeling the effects of a decline in ad spending, Brian Olsavsky, chief financial officer, argued that Amazon’s advertising model, which is based mainly on promoting products in its market, is better. protected.

“I think if you look at our type of advertising, it works well in recessionary environments. Much of our advertising is right when customers go shopping. »

Inflation pressures and supply chain headaches have weighed on Amazon’s performance in 2022. Even if Thursday’s after-hours stock jump continues, the stock price would still be down almost 30% for the year.

Amazon announced this week that it would increase the price of its Prime membership program in five of its European markets, including the UK, where annual membership has increased by 20%.

This follows a decision in February to raise the price for US Prime customers, where it also added a 5% surcharge to the delivery charge for sellers, in a bid to offset rising fuel prices.

Amazon has also had several high-profile departures. Last week Jay Carney, the company’s outspoken and influential chief business officer, announced he was leaving to join travel agency Airbnb.

Other recent departures include Dave Clark, head of global consumption and architect of its logistics network. Amazon has acknowledged amid spiraling costs that it has overstretched warehousing and staffing during the coronavirus crisis. She had to back down on some of her open-air warehouse projects.

Amazon said it would increase its capital investments in the coming year while shifting the focus of those expenditures toward technology infrastructure for AWS and away from e-commerce logistics. The workforce has also been down from earlier in the year, when it hired additional staff to deal with the Omicron variant of the coronavirus, Olsavsky said.

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