🛍 Will Amazon Overcome Its Problems?

MGM Resorts bets on online gambling.

Hey Global Investor! Here’s what you need to know before the US markets open.

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🛍 Amazon: Tackling The Piranhas And The Eels?

Amazon.com Inc. (AMZN) reported its first quarterly loss since 2015. The core business is slowing down while an investment it had made back in the day is backfiring for now. The company expects this sub-par performance to continue. Is it all dark clouds for the foreseeable future?

The Piranhas In Amazon!

High warehouse costs, higher shipping costs, cooling demand, slowing core business, misfiring investments – a litany of things didn’t work out that well for Amazon in Q1, which, in turn, hit quarterly earnings. AWS was the only silver lining.

Key Highlights From Q1 2022:

  • Revenue: $116.44B Vs $116.3B expected
  • Earnings Per Share: $7.38 Vs $8.36 expected
  • Amazon Web Service: $18.44B Vs $18.27B expected
  • Advertising: $7.88B Vs $8.17B expected

Amazon’s revenue grew 7% Y-o-Y in Q1 – the first time in the company’s history that revenue growth was under 10% in back-to-back quarters. This was also the slowest growth rate for any quarter since the dot-com bust in 2001.

The e-commerce business, which had accelerated as people stayed home during the pandemic and ordered left, right, and center, saw revenue drop 3% from last year. The number of products sold through the website was flat Y-o-Y – the first such occurrence since 2016, when the metric was floated.

Amazon, the second-largest private employer in the US, hired ~800K people in the last two years, taking the total headcount to 1.62M. It raised wages, paid bonuses to new hires, and deployed half-empty vans to ensure packages were delivered on time. As a direct consequence, operating expenses ballooned to $112.7B during the quarter. OpEx in North America jumped 58% in two years.

Amazon has introduced a 5% surcharge on independent sellers who use its shipping services to make up for these costs. It also hiked its US Prime membership to $139 from $119, the first in four years. Advertising business grew 23% Y-o-Y, eclipsing Google’s 22% and Meta’s 6.1%.

Revenues of Amazon Web Services, the company’s cloud-computing unit, rose 36.5% from last year to $18.44B and were above expectations. AWS underperformed Google Cloud, whose revenue grew 44% in Q1 but outperformed Microsoft’s Azure, which rose 26%.

The Shock Of An Electric Eel!

Amazon reported a net loss of $3.8B during the quarter, compared to an $8.3B profit in Q1 2021. Surging costs apart, one of Amazon’s investments plunged the company to its first quarterly loss since 2015.

Amazon had invested over $1B in EV-maker Rivian Automotive in 2019 as part of a strategic partnership to go green. Rivian went public last November and blew past the $100B in market cap, and Amazon, which has an 18% stake in Rivian, laughed all the way to the bank back then. Today, that bank stands burgled!

Rivian’s shares are down 83% from their November peak. Amazon took a $7.6B pre-tax charge on its Rivian stake, following the footsteps of Ford, which, as a co-investor in Rivian, took a $5.4B hit this quarter. Amazon has signed an agreement with Rivian to produce 100K delivery vehicles by 2030 as it looks to expand into the grocery and one-day delivery facilities.

Currently, that seems to be a pipe dream, with Rivian battling supply chain constraints and slashing its electric truck and SUV delivery forecast by 50% to 25K for the year.

Amazon anticipates revenue of ~$118B for the current quarter, compared to analysts’ projections of ~$125B. Operating loss for the quarter could be ~$2B, compared to consensus estimates of a $6.8B profit. CEO Andy Jassy believes it will take some time for the company to get a handle on economic pressures and improve productivity.

On the labor front, its warehouse workers in New York voted to establish its first-ever union in the US last month. Two other facilities now want to follow suit as the 1.2M strong workforce seeks proper representation within the company. Amazon plans to challenge the vote and accused union leaders of using objectionable and coercive behavior to ask for workers’ support.

Amazon’s shares tumbled 14% on Friday, their worst trading day since 2006, wiping out $206B in market cap, rivaling Meta’s single-day drop of $240B  just a few months earlier. Analysts wonder if the company has reached a saturation point in the US.

After all this, Amazon still trades at a trailing-12-month price-to-earnings multiple of 69x. But, with all the challenges surrounding the company, it will take a lot of justification to retain this premium. Whether Rivian will turn out to be the antidote to Amazon’s heartache or the trigger is anyone’s guess!

Market Reaction
AMZN ended at $2,490, up 0.18%. Shares fell 14% on Friday.

Company Snapshot 📈

AMZN $2,490.00 +4.37 (0.18%)

Analyst Ratings (52 Analysts) BUY 94%  HOLD 4%  SELL 2%

Newsworthy 📰

That’s The Spirit!: Spirit Airlines rejects JetBlue bid, sticks with Frontier deal (SAVE -9.36%)

Expanding: MGM Resorts offers $607M for Swedish online gambling company (MGM +2.27%)

Boost: Moderna says its vaccine for ages under 6 will be ready for US review in June (MRNA +5.71%)

Later Today 🕒

  • Starbucks Corp. Earnings (SBUX)
  • Advanced Micro Devices Inc. Earnings (AMD)
  • Airbnb Inc. Earnings (ABNB)
  • Pfizer Inc. Earnings (PFE)
  • DuPont De Nemours Inc. Earnings (DD)
  • BP Plc. Earnings (BP)
  • Freshworks Inc. Earnings (FRSH)
  • Gartner Inc. Earnings (IT)
  • Restaurant Brands International Inc. Earnings (QSR)
  • Lyft Inc. Earnings (LYFT)
  • Hilton Worldwide Holdings Inc. Earnings (HLT)
  • AlerisLife Inc. Earnings (ALR)
  • Marathon Petroleum Corp. Earnings (MPC)
  • Match Group Inc. Earnings (MTCH)
  • Biogen Inc. Earnings (BIIB)
  • CarParts.com Inc. Earnings (PRTS)
  • Colliers International Group Inc. Earnings (CIGI)
  • Cummins Inc. Earnings (CMI)
  • KKR & Co. Inc. Earnings (KKR)
  • MicroStrategy Inc. Earnings (MSTR)
  • Norsk Hydro ASA Earnings (NHYDY)
  • Rockwell Automation Inc. Earnings (ROK)
  • S&P Global Inc. Earnings (SPGI)
  • Sage Therapeutics Inc. Earnings (SAGE)
  • Tellurian Inc. Earnings (TELL)
  • Teva Pharmaceutical Industries Ltd. Earnings (TEVA)
  • XP Inc. Earnings (XP)
  • Yum China Holdings Inc. Earnings (YUMC)
  • 7:30 PM IST: Job Openings & Quits
  • 7:30 PM IST: Factory Orders
  • Later Today: Motor Vehicle Sales

Today’s Fun Fact

Campbell’s Soup Company created the green bean casserole recipe

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