Amazon Shares Tumble on $3.8B Net Loss, Scaled-Down Q2 Guidance

Amazon shares hit a 52-week low Friday at $2,432.50 before rebounding somewhat later in the day after the company's Thursday Q2 guidance was below analysts’ expectations. Amazon forecast net sales will grow 3%-7% over Q2 2021 to $116 billion-$121 billion, with operating income ranging from a $1 billion loss to $3 billion. Shares closed 14% lower Friday at $2,485.63.

Guidance takes into account a Q3 Prime Day event -- in July vs. June last year and October in 2020 -- and no additional business acquisitions, restructurings or legal settlements in the quarter, Amazon said. Prime Day will happen in over 20 countries this year.

Amazon’s Q1 revenue was $116.4 billion, up from $109 billion in the year-ago quarter. It had a net loss of $3.8 billion due to its investment in Rivian Automotive, said Chief Financial Officer Brian Olsavsky on a Thursday earnings call. In a statement, CEO Andy Jassy said: The COVID-19 pandemic “and subsequent war in Ukraine have brought unusual growth and challenges."

Olsavsky noted Q2 ’21 had continued “extraordinary net sales growth” that “began to moderate” as vaccines became more available in many countries “and people started getting out of their homes.” Customer demand is still strong, and Amazon is seeing strength in Prime purchases and commitment levels; members are using their benefits, he said. Though it isn’t seeing market softness, the company is “cognizant of the current inflationary environment” and its impact on household budgets, he said.

Amazon’s delivery performance is nearing pre-pandemic levels, said Olsavsky. Labor and physical space “are no longer the bottlenecks they were” through much of 2020-2021, Olsavsky said. Its one-day and same-day shipping services, which took a hit due to heightened demand at the beginning of the pandemic, are “approaching” pre-pandemic service levels, Olsavsky said, “but this doesn’t turn on a dime.” Faster delivery has to be “built over time,” he said, saying he hopes that's “weeks and months” vs. years.

Same- and one-day shipments wouldn’t be possible without Amazon Logistics, Olsavsky said. “Our shipping rates are very competitive, and we are seeing savings vs. what we would get from external carriers,” he said. Amazon wouldn’t have had the capacity to handle the transportation loads it had over the past couple of years if it had to rely on external third-party providers, he said.

The company had $6 billion in “cost pressures” from inflation and internal costs in Q1 and projects to incur another $4 billion in Q2, Olsavsky said. “Wage inflation” added $2 billion in costs vs. Q1 2021, Olsavsky said, saying they will be “around for some time” due to “the state of the labor force and fulfillment network following two years of disruption and large demand variability.”

Amid a widespread labor shortage, Amazon went from being understaffed in second-half 2021 to being “overstaffed” in Q1, with lower productivity, Olsavsky said. The company hired more people when a lot of employees were out on leave during the omicron surge in Q4, then “found ourselves overstaffed” in warehouses when the omicron variant subsided “rather quickly.” Amazon believes that will "dissipate,” he said.

Excess capacity in Amazon’s fulfillment and transportation network is a result of decisions in 2020 and early 2021 “to not let space be a constraint on our business,” Olsavsky said. Those decisions resulted in $2 billion in added costs, he said. With demand patterns having “stabilized,” Amazon is matching capacity to demand and lowering capital expenditures this year.

Air and ocean shipping rates continue to be at or above elevated rates in second-half 2021, Olsavsky said, citing the impact of COVID-19 in China, including labor shortages, and the impact of war in Ukraine on fuel prices. The cost to ship in overseas containers more than doubled vs. pre-pandemic rates, and fuel is 1.5 times higher, he said. Higher costs will persist “a little longer than we were hoping at the beginning of the year,” he said.