Amazon still hasn’t turned a profit in 2022, but don’t worry, Wall Street

Amazon is still feeling the brunt of its extraordinary success during the pandemic amid falling consumer spending and rising costs. Earnings: The e-commerce and cloud giant hasn’t turned a profit for the second straight quarter, with net losses totaling $2 billion for the trailing three months and $5.87 billion year-to-date. At the same time, the company reported net income of $7.77 billion and $15.88 billion in 2021, respectively. However, the company hopes to return to profitability in the next quarter.

With $121.2 billion in sales, Amazon reported year-over-year growth of 7.2%. But that pace, 0.1 point below that of the first quarter, is the company’s slowest in nearly 20 years. Still, those poor results are less catastrophic than expected, sending action up 11% when Wall Street opened, to levels not seen since May. For comparison’s peak, Amazon’s stock is down 19.8% year-to-date, a trend followed by all tech stocks.

Too much headwind

If Amazon’s financial results haven’t been sanctioned by the markets, that’s largely because the company has suffered $3.9 billion (before taxes) in losses related to its stake in Rivian Automotive, down as much as 18%. The electric carmaker’s price has plummeted 67% year-to-date. In other words, while Amazon is far from its standards of the past two years, it’s performed fairly well despite the accumulation of headwinds hitting the broader economy, and tech in particular.

First of all, the appreciation of the dollar against other currencies – and particularly against the euro – reduces the value of his foreign sales, which account for 23.8% of his income. Amazon, for example, says sales of its online stores division (which includes some of its e-commerce business) fell 4%, but would have simply flattened out without inflation.

Then, with physical stores reopening, consumers are spending less on their platform, but also because of rampant inflation eating away at their purchasing power. To make matters worse, this inflation, combined with the war in Ukraine, caused the cost of gas and energy and, through a rebound effect, that of supplies to skyrocket. And this despite the fact that global logistics is only just beginning to recover from the disorganization caused by the pandemic.

“Despite inflation driving up fuel, energy and transport prices, we are making progress towards more controllable costs (…), particularly by improving the productivity of our network of sorting and logistics centers‘ Andy Jassy, ​​​​the head of Amazon, is quoted as saying in a press release.

Amazon therefore has to incorporate a large amount of additional costs that it cannot control. To achieve this, he passes on part of the shortfall to the costs he controls, mainly by adapting his machine to post-Covid conditions. During the quarter, headcount fell 6% to 1.52 million due to a layoff policy and a hiring freeze for certain positions. Brian Olsavsky, the company’s chief financial officer, has been speaking since the spring of a situation where “overstaffed“after two years”understaffed“.

Amazon is also trying to scale back the heavy investments in infrastructure (warehouses, sorting centers, etc.) it had made to keep up with increased demand during the pandemic. For buildings that do not belong to her, she is looking for “dpath aggressiveRenegotiate leases and sublet to third parties.

The cloud, a tireless engine

As Amazon’s sales activity navigates a zone of turbulence, Amazon Web Services, the group’s cloud division, which largely dominates its market with a 33% stake, continues its impressive growth. It had revenue of $19.7 billion for the quarter, up 33% year over year, a steady rate over several years.

Faced with this situation, Amazon’s Chief Financial Officer, Brian Olsavsky, announced that he would focus the group’s capital investments on its cloud activities at the expense of its distribution activities, which are under consideration for expansion. It must be said that the cloud market, in addition to a great growth potential to be exploited, allows to obtain much higher margins than distribution.

The other growth lever for Amazon that recently surfaced in its financial results is online advertising. In this market, which has been invested for several years, the group achieved a turnover of 8.8 billion dollars (+ 18%). Result: the good condition of these two new pillars of Amazon’s models makes it possible to compensate for the difficulties of e-commerce. This is good news in the medium term, because the crisis could stretch over several quarters.