Amazon (AMZ) was the last of Big Tech names to unveil quarterly earnings this reporting season. The e-commerce giant revealed a revenue forecast that missed analyst estimates as consumers curb online spending in the face of economic uncertainty and a return to in-person activities. The company also reported a loss on its investment in electric-vehicle maker Rivian Automotive.
The tech behemoth’s cloud-computing platform Amazon Web Services (AWS) was a bright spot during a lackluster quarter, but revenue failed to offset weakness in the company’s core retail business.
Here were the main metrics from Amazon’s report, compared to consensus estimates compiled by Bloomberg:
“The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” Amazon CEO Andy Jassy said in a statement.
“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” he added. “This may take some time, particularly as we work through ongoing inflationary and supply chain pressures, but we see encouraging progress on a number of customer experience dimensions, including delivery speed performance as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020.”
Amazon’s stock dropped 10% in post-market trading as investors weighed the results.
Shares of Amazon have been a laggard among mega-cap technology stocks since last year when the company saw its robust year-over-year growth rates begin to fade following an impressive 2020 driven by a pandemic-stoked surge in online shopping. Many analysts anticipate higher transportation expenses driven by record gas prices and greater labor costs to further weigh on margins in the latest results.
Investment bank Cowen, which recently trimmed its forecast, said in a recent note that supply chain issues, could present a risk to its forecast as they continue to persist into the year.
Some strategists anticipate pricing power associated with the higher costs of goods due to inflation may give the company a needed profitability boost, along with the recent $20 price increase of a Prime membership.
“We expect revenue and operating income around the high-end of Amazon’s guidance ranges driven by higher product pricing and robust consumer spending, partially offset by higher inflation costs,” Wedbush’s Michael Pachter said in a note, emphasizing the same inflationary pressures strategist worry put a dent in profit also likely benefited the company by driving higher product prices across most of its categories, especially groceries. “Additionally, we believe inflation did not result in a material impact to revenue in the first quarter due to robust consumer spending.”
Consensus estimates see earnings per share of $8.40, per Bloomberg data – a sharp decline from $15.79 during the first quarter of 2021. The tech titan is also expected to see a significant slowdown in its revenue growth rate, with analysts at Bloomberg forecasting the figure to come in at $116.43 billion from $137.4 billion in the fourth quarter.
While projections for performance of Amazon’s retail business are lackluster, results may get a lift from its high-margin cloud computing business AWS. Last quarter, the flagship platform climbed nearly 40% to $17.8 billion. Sales from AWS are expected to come in at $18.25 billion, a slight deceleration from a strong first quarter but still at an increase of 37%, according to Bloomberg data.
Adding to inflationary pressures is a slew of labor challenges for the company. In addition to a tight labor market driving wage expenses higher, employees at more than 100 U.S.-based Amazon facilities have pushed ahead with unionizing efforts at their workplaces since a historic union victory at a warehouse on Staten Island in New York earlier this month. Investors will also be looking to see how labor trends affected the company’s performance during the quarter.
For Bank of America, Amazon remains its top FANG stock for 2022 despite recent challenges. The institution specifically cited AWS strength, as well as an opportunity to improve margins from trailing 12-month lows.
“While retail has slowed somewhat, we think Cloud spend could continue to be a bright spot,” BofA analysts said in a recent note. “Inflation clouds the 2022 margin recovery story, but Amazon remains our top FANG stock.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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