Amazon's Q2 Loss 'Well Below Expectations,' Says Analyst
Amazon’s $2 billion Q2 net loss was “well below expectations,” Wedbush Securities analyst Michael Pachter wrote investors Friday, citing “the poor performance” of Amazon’s investment in Rivian,” whose rollout of an electric vehicle delivery fleet has been “severely impacted” by supply chain constraints. Amazon posted a $7.8 billion profit in the year-earlier quarter.
Amazon’s net sales grew 7% to $121.2 billion in Q2, exceeding the top end of guidance, but were hampered by 320 basis points of unfavorable impact from foreign exchange rates, the company said; it incorporated a 200-basis-point impact in Q2 guidance. Shares rose 12.7% Friday, closing at $135.
Amazon’s Q3 outlook is for net sales to grow 13%-17% to $125 billion-$130 billion vs. Q3 2021, including a 390-basis point impact from foreign exchange rates. Pachter called Amazon’s operating profit guidance of $0-$35 billion “conservative.” The analyst trimmed fiscal 2022 revenue estimates to $523.73 billion from $524 billion and operating income to $15.69 billion from $24.67 billion.
Pachter called Amazon’s largest setbacks “temporary macro headwinds that will eventually subside,” saying its “infrastructure-heavy business model” is its biggest competitive advantage over peers. Amazon’s cloud and ad businesses should see “steady margin expansion,” he said. AWS net sales were $19.7 billion in Q2, up 33% year over year, with an annualized sales run rate of nearly $79 billion.
Commenting on “more normal shopping patterns” as COVID-19 pandemic-related trends have subsided, Chief Financial Officer Brian Olsavsky said on a Q3 earrings call Thursday that Amazon has slowed its 2022-2023 operations expansion plans “to better align with expected customer demand.” He noted quarter-over-quarter improvements in delivery speed and inventory in-stock levels, saying the company adjusted staffing levels to improve its expanded operations network. Amazon added 14,000 workers in Q1 after cutting net headcount by 27,000 the year before.
Some 40% of Amazon’s 2022 capital expenditures are in support of transportation and warehouses, Olsavsky said. A new wrinkle to inflation pressure this quarter is rising electricity rates in Amazon data centers due to a ramp in natural gas prices, he said.
On Amazon’s advertising business, Dave Fildes, director-investor relations, noted opportunities in the company’s Freevee ad-supported streaming TV service plus the ad-supported Amazon Music tier. As viewing behavior continues to shift from cable to streaming, “advertisers are using our ad-supported content to reach those viewers,” Fildes said. The Twitch livestreaming service and Thursday Night Football offer more advertising revenue opportunities, he said.
Amid a softening advertising market, Amazon is still seeing strong growth due to its “highly efficient advertising,” Olsavsky said. “People are advertising at the point where customers have their credit cards out and are ready to make a purchase. It's also very measurable.”
Amazon expanded its grocery store footprint in Q2, opening 12 Amazon Fresh stores across the U.S. and the U.K. It introduced the next-generation Amazon Dash Cart, calling it a “smart shopping cart” that uses computer vision algorithms and sensor fusion to help identify items placed in a cart, allowing customers to skip the checkout line after shopping. Dash Cart is expanding to its first Whole Foods store, so shoppers can “fit more items into their cart, bring the cart to their car, and easily search for specific items on the cart’s screen.”
New vehicle integrations for Alexa include the 2023 Acura Integra, 2023 GM Equinox and 2022 Lucid Air, the company said. Customers can ask Alexa to navigate, play music and audiobooks, give the news and weather, control smart home devices, pay for gas and find parking, Amazon said. Customers can remotely ask Alexa to lock or unlock the car doors, check gas levels or charging range, and start or stop the engine, it said.