Amazon said on Thursday that as customers go out of their homes more, sales growth will slow in the next few quarters. This is CEO Andy Jassy (Andy Jassy) in Jeff Bezos (Jeff Bezos) A tepid beginning after 27 years at the helm.
The company said that Amazon’s most valuable customer, Prime membership, has also seen a slowdown in spending growth. The stock price fell 7% in after-hours trading.
More than a year after entering the COVID-19 pandemic, Amazon’s financial brilliance is fading slightly. When the physical store closed, Amazon announced record profits, attracted more than 200 million Prime loyalty subscribers, and recruited more than 500,000 employees to keep up with the growing demand.
Now, the company faces the arduous task of climbing the peak again. Amazon said that while its revenue surged 44% in the first quarter of this year, it dropped to 27% in the period ending June 30. Sales in the third quarter may only increase by 16%.
Amazon CFO Brian Olsavsky attributed this to a difficult comparison with last year, when consumers stayed more indoors and relied on e-commerce to meet their daily needs. In the United States and Europe, customers are now running around.
He said that they “are doing other things besides shopping.”
According to Refinitiv’s IBES data, revenue in the second quarter was US$113 billion (approximately 8397.7 billion rupees), which was lower than the average analyst expectation of US$115 billion (approximately 85463 billion rupees). Profit increased by 48% to US$7.8 billion (approximately Rs 57,970 crore), making it the second largest profit ever announced by Amazon.
Olsavsky told reporters that Amazon expects this low growth rate to continue in the next few quarters.
The prospects emerged after Jassy took over as Amazon’s top job on July 5, which has never been larger or more complicated. Last quarter, Amazon announced the acquisition of film studio MGM for US$8.5 billion (approximately Rs. 631.7 billion), expanding in Hollywood while operating a grocery chain, establishing a healthcare business, and facing scrutiny by global regulators.
Olsavsky said the company hopes that COVID-19 will subside and the economy will continue to rebound. Although colleagues Alphabet and Facebook said they would need to vaccinate employees returning to the office, Amazon did not make such a statement.
During the pandemic, the company has been grappling with employee protests against safety precautions and a high-profile but failed union bid at a factory in Bessemer, Alabama.
Edward Jones analyst Brian Yarbrough said it is “unfeasible” for Amazon to maintain its rapid development.
“Considering the huge scale of the business, this is still an amazing growth,” he said. “Obviously, the pandemic will help them, but above these numbers, they will not be able to grow rapidly.”
The world’s largest online retailer has postponed its annual marketing blitz Prime Day to June, hoping to sell goods before shoppers go on vacation. Olsavsky told analysts that this only helped a lot: Since May 15, excluding Prime Membership Day, sales have only risen around the age of 15.
Amazon Web Services performed better. The revenue of Jassy’s long-term cloud computing division increased by 37% to US$14.8 billion (approximately 109.97 billion rupees), higher than the expected 14.1 billion US dollars (approximately 10474 billion rupees). Olsavsky said that although AWS has lowered its prices, it has signed new multi-year agreements with major customers.
Amazon’s scale poses a huge challenge.
In addition to the $200 million (approximately Rs 14.9 billion) of additional inventory that Amazon plans to pay Jassy over the next 10 years, costs continue to rise. The company provided an average hourly salary of US$17 (approximately Rs 1,260) and signing bonuses to attract 75,000 workers during labor shortages.
Olsavsky said that he expects wage pressures to continue in the near future because the reopening of the industry, government payments and returning to school will affect individuals’ willingness to work.
“This is a very competitive labor market, and of course the biggest source of inflationary pressure we see in the industry,” he said.
This winter, the second largest employer in the United States became a rallying point for organized labor. They hope to form Amazon’s first American labor union and inspire similar efforts across the country. Amazon is waiting for a decision on whether the regional director of the National Labor Relations Board will overturn its overwhelming victory in the Bessemer union election in Alabama and demand a re-election.
After counting votes in April, Bezos stated that his goal is to make Amazon a better place to work. It is not clear how he will manage in the role of executive chairman of Amazon’s board of directors.
Olsavsky said that Jassy has “started”, although Bezos will continue to weigh decisions that have no turning back.
“We have a good handover,” Olsavsky said. But Bezos “will not leave. He will obviously continue to be involved.”
© Thomson Reuters 2021