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Falling sales and high costs weigh on Amazon’s earnings

Amazon recorded its slowest revenue growth ever in the first quarter due to a decline in online retail sales and high costs, saying its aggressive push to expand during the pandemic had left it overstaffed and with excess capacity.

Sales in Amazon’s online store segment came in at DKK 51.1 billion. USD in the period January-March, a decrease from 52.9 billion. USD in the same period last year.

Operating revenues of DKK 3.7 billion USD in the first quarter compared to 8.9 billion. USD last year, was lower than analysts’ expectations of 5.3 billion. The company registered a total turnover of DKK 116.4 billion. USD in the quarter, 7 percent higher than last year. For the current quarter, Amazon predicted a similarly low revenue growth of between 3 and 7 percent.

The results on Thursday sent the company’s shares down as much as 10 percent in aftermarket.

The worse-than-expected performance comes as the company struggles with supply chain problems, increased staff costs and inflation.

In total, the company registered a net loss of DKK 3.8 billion. USD in the quarter, including a loss of 7.6 billion. USD in relation to the value of its share in the electric car manufacturer Rivian.

“The pandemic and the ensuing war in Ukraine have brought extraordinary growth and challenges,” said Andy Jassy, ​​Amazon’s CEO, adding that delivery rates and consistency were “approaching levels not seen since the months immediately preceding the pandemic in early 2020 “.

Amazon CFO Brian Olsavsky told reporters that the company withdrew on the aggressive expansion of storage space during the pandemic, suggesting that the company had over-expanded in adding capacity.

“The amount of space we want to add in 2022 is much lower than 2021 and 2020 from a space point of view, and we even challenge a lot of that,” he said. “But you commit to warehouse buildings, 12, 18 months in advance – so it’s hard to turn it into a penny.”

Contrary to its unprecedented recruitment push during the pandemic, Olsavsky said Amazon now considered itself “overstaffed”, resulting in $ 2 billion. in additional costs created by lower productivity rates during the quarter. The company had a peak of DKK 1.7 million. employees in the quarter, which has since been reduced to 1.6 million.

Year-on-year sales growth bar chart for Amazon Online Stores segment (%) showing post-pandemic comedown

Despite the rapidly rising operating costs of its e-commerce business, Amazon’s balance sheet had been supported this year by strong growth in cloud computing.

In the first quarter, AWS ‘revenue was $ 18.4 billion, an increase of 37 percent over last year. Operating income in the cloud division was $ 6.5 billion. compared to a loss of $ 2.8 billion. for Amazon’s retail business in the United States and internationally. Cloud revenue beat analysts’ expectations of $ 18.27 billion. according to data from FactSet.

“Amazon’s performance shows that it is not immune to macroeconomic downturn affecting the rest of retail and e-commerce,” said Guru Hariharan, CEO of CommerceIQ, an e-commerce management platform.

“As inflation and cost increases continue, customers are retiring to buy, especially discretionary purchases, which are disproportionately much e-commerce.”

Amazon has sought to ease the cost of inflation by announcing an increase in the cost of its cornerstone Prime membership scheme – from $ 119 to $ 139 a year – and adding a 5 percent fuel surcharge to deliveries met by its own logistics network

Earlier this year, the company said that continued rising staff costs due to retention problems and a highly competitive labor market as well as supply chain challenges would mean slower growth in 2022 compared to the major pandemic increases in 2020 and 2021.

Olsavsky said the company felt it was now going through the worst of these challenges, and was able to start calling back on some of the incentives offered to new employees, such as $ 1,000 signing bonuses. “Generally across the network that has retreated,” he said.

Meanwhile, the company is facing a growing union push at its facilities. In April, workers voted to form the first union at a U.S. Amazon facility in Staten Island, New York, while voting at another, smaller facility has begun this week. The result of a third ballot, in Bessemer, Alabama, awaits a decision on the validity of contested ballot papers.

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