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Home News Business

Resilient consumer demands despite a steep economy propel Amazon’s share by 13%

Its cloud-based computing service also added to its earning potentials

Vonci Gigi by Vonci Gigi
2 weeks ago
Reading Time: 3 mins read
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Amazon share jump by 13%
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Another tech company that is smiling to the bank this quarter is the e-commerce giant, Amazon which on Thursday made it known that it expects a jump in the third-quarter revenue as it collects bigger fees from Prime loyalty subscriptions while consumers’ demands remained high despite the dire state of the economy.

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Shares of the world’s largest online retailer rose 13% in trading after the bell, extending its market valuation by more than $150 billion.

While fellow online retailers are facing a reckoning, companies like Walmart in fact made it clear that they would make much less this year compared to their expectations.

U.S. consumer confidence has tumbled to a recent low, and some are sticking to lower-priced essentials to manage economic woes.

But in spite of the economy, Amazon has projected net sales between US$125 billion and US$130 billion for the summer period, while analysts expected about US$126.42 billion, says IBES data from Refinitiv.

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In a press release, the company’s chief executive Andy Jassy said the company is “seeing revenue accelerate as we continue to make Prime even better for members, both investing in faster shipping speeds, and adding unique benefits such as free delivery from Grubhub for a year.”

In a positive sign for its operation, Amazon had more goods in stock than it did before the COVID-19 pandemic began in early 2020, Chief Financial Officer Brian Olsavsky told reporters on a conference call.

The company also doubled how many items it could deliver just a day after purchase, making progress on a long-term commitment, according to press releases. The company’s July marketing event Prime Day was its biggest ever by unit sales.

“It looks like Amazon is finally primed to turn the corner after a rocky couple of quarters,” Insider Intelligence analyst Andrew Lipsman said.

Asked about Walmart and changes in consumer buying patterns, CFO Olsavsky said, “We did not notice a step down in June.”

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For the company, sales growth has been on a decline year-over-year in some of the retailer’s business segments. In North America, which is its largest market, net sales saw a 10% increase in the second quarter unlike a 22% growth in the same period back in 2021.

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Its international unit saw an outright decline of 12%.

A changing of the guard has heralded the departures of Consumer CEO Dave Clark and corporate affairs head Jay Carney, as well as two of the company’s most senior Black executives. A period of record profit gave way in the first quarter of 2022 to Amazon’s first quarterly loss in seven years.

Amazon on the other hand lost US$2 billion in the second quarter including a pre-tax valuation loss of US$3.9 billion from its investment in the electric truck maker, Rivian even though the company beat expectations in posting operating income of US$3.3 million due to its profitable cloud-based computing service, the AWS.

Analysts on average had estimated $1.8 billion, according to research firm FactSet.

The company’s extra costs from inflation, productivity, and other items were $4 billion, in line with Amazon’s expectations and about $2 billion less than it faced at the year’s outset, Olsavsky said.

Even though the company has made effort to double its fulfillment network in just two years, Amazon has started slowing warehouse openings in order to reduce costs. It has also paused a major office space expansion in Bellevue, Washington, and it has now filled roles that became vacant in some facilities while also lowering its full and part-time headcount from the March quarter.

It has raised some prices, too. After increasing U.S. fees for its fast-shipping club Prime, Olsavsky said subscription retention was as good or better than the company expected.

When Olsavsky was asked about a potential slowdown, he said on an analyst call that a downturn in 2008 resulted in companies choosing to use Amazon’s cloud services instead of building their own data centers, which has given AWS a big edge ahead. In fact, its rival in the same cloud computing market, Microsoft said earlier this week that its fiscal-year revenue is expected to jump on demand for its cloud services.

Adjusting for items, Amazon reported earnings per share of 18 cents, above the consensus for a per-share profit of 13 cents, according to IBES data from Refinitiv.

Tags: Amazon

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