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Amazon reports $3.84 billion loss in online business, Rivian Investment in Q1 2022

Amazon posted a disappointing quarter and outlook on Thursday, as the e-commerce giant was overwhelmed by higher warehouse operating costs and the cost of delivering packages to customers.

Shares fell 9% in after-hours trading.

Amazon faces a number of challenges after a prolonged surge in sales during the COVID-19 pandemic. The company’s expenses increased as it offered higher wages to attract workers. A New York City distribution center voted to create Amazon’s first U.S. union, a result the retailer is competing for. Higher fuel prices could reduce consumers’ income, just as it made delivery more expensive for Amazon, the world’s largest online retailer.

Amazon’s forecasts suggest that raising prices for its fast-shipping club Prime last quarter may not be enough to support its profits. The company expects to as much as $1 billion (approximately Rs. 7,650 crore) in operating income for the quarter, or gain as much as $3 billion (approximately Rs. 22,950 crore). This was lower than the operating profit of $7.7 billion (approximately Rs 58,900 crore) in the same period last year.

Andrew Lipsman, principal analyst at Insider Intelligence, said: “It’s been a tough quarter for Amazon, with every key area of ​​the business moving in the wrong direction and a bleak outlook for the second quarter. .”

Still, there were some bright spots, like Amazon Web Services, the division that new CEO Andy Jasey ran before taking the company’s job last year. The segment’s revenue rose 37 percent to $18.4 billion (Rs 140.75 billion), slightly above analysts’ expectations.

Jassy said the company has finally met warehouse staffing and capacity needs, but still has work to do in improving productivity.

“This may take some time, especially as we deal with ongoing inflation and supply chain pressures,” he said in a release. “We are seeing encouraging progress on many customer experience fronts, including delivery speed performance. , as we are now approaching levels not seen since the months before the pandemic in early 2020.”

Inflation hits Amazon

Amazon’s results call consumer demand into question. While online store sales fell in the first quarter and the number of products it sold was flat, the retailer’s chief financial officer, Brian Olsavsky, said the company was pleased with the speed with which shoppers were buying. So far, inflation has not dampened typical ordering patterns, he said.

Net sales in the first quarter were $116.4 billion (Rs 8,903.9 crore), in line with analysts’ expectations, according to IBES data from Refinitiv.

Amazon reported a loss of $3.8 billion (approximately Rs 290.7 crore), or $7.56 (approximately Rs 580 crore) per share, against a profit of $8.1 billion (approximately Rs 619.6 crore), or $15.79 (approximately Rs 580 crore) per share 1200 rupees) shared, a year ago. This partly reflects a drop in the value of its stake in electric vehicle maker Rivian by $7.6 billion (approximately Rs 58,140 crore).

In North America, the company’s largest market, sales rose 8 percent, while operating expenses surged 16 percent to $71 billion (Rs 543,185 crore).

Olsavsky told reporters that the company added about $6 billion in costs from a year earlier, including $2 billion (about 153 billion rupees) of pressures. These range from higher wages (though the company has largely cut signing bonuses) to fuel costs that are 1.5 times what they were a year ago. Olsavsky told analysts that the Russian invasion of Ukraine caused prices to rise.

Amazon’s goal is to optimize transfers between warehouses to control spending. It is also in an unusual position of excess warehouse and shipping capacity – costing around $2 billion (approximately Rs 153 billion) in the first quarter.

That means Amazon needs to fulfill more orders to justify the space, said Scott Mushkin, founder of research firm R5 Capital. That capacity could come in handy during Amazon’s annual sales blitz, Prime Day. The company announced Thursday that the event will take place in July.

“They now have a lot of distribution and logistics infrastructure. To take advantage of it, they need volume,” Mushkin said.

The e-commerce giant has had mixed results in brick-and-mortar retail. In March, Amazon said it planned to close all 68 bookstores, pop-ups and other home goods stores while focusing more on groceries. For example, it recently automated two Whole Foods stores, eliminating the need for cashiers. The company’s brick-and-mortar sales rose 17 percent to $4.6 billion (approximately Rs. 351.7 billion).

Amazon’s outlook reflects broader industry challenges. Just this week, United Parcel Service, one of Amazon’s partners, said it expected growth in e-commerce deliveries to slow.

Amazon expects second-quarter net sales to be between $116 billion (approximately 886.86 billion rupees) to $121 billion (approximately 925.08 billion rupees). Analysts expected $125.5 billion (Rs 95,949 crore), according to IBES data from Refinitiv.

© Thomson Reuters 2022

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