Amazon stock jumps 14% as sales batter and AWS growth overcomes second straight quarterly loss

Amazon.com Inc. decided to cut spending after years of pumping money into growth, and the result was a second straight quarterly loss, but slowing sales and continued strong growth for Amazon Web Services. helped push the stock higher after hours trading. Thursday.

Amazon
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reported a second-quarter loss of $2 billion, or 20 cents per share, on sales of $121.2 billion, after posting a profit of 76 cents per share on revenue of $113.08 billion one year ago. Prior year results have been adjusted to Amazon 20-to-1 stock splitand second-quarter results include a $3.9 billion loss following a decline in the valuation of an investment in Rivian Automotive Inc.
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It’s the first time Amazon has posted back-to-back quarterly losses since the second and third quarters of 2014.

Analysts on average had expected Amazon to post a profit of 12 cents a share on sales of $119 billion, according to FactSet, after executives reported surprising loss and weaker-than-expected forecast three months ago and said they would cut costs. At that time, executives said they faced $6 billion in additional costs in the first quarter, including $2 billion due to lower productivity, and expected $4 billion of such costs in the second quarter at the start of the cuts.

“Despite continued inflationary pressures on fuel, power and transportation costs, we are making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our distribution network,” Chief Executive Andy Jassy said in a statement attached to the results. Thursday, adding that “we are also seeing an acceleration in revenue.”

Amazon shares jumped 14% in after-hours trading after the earnings release. The stock has been under pressure since Amazon reported its first quarterly loss in seven years, down 16% in the past three months as the S&P 500 index
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down 6.2%.

E-commerce plummeted as the world entered the third year of the COVID-19 pandemic, as seen in the struggles of Amazon to sustain its massive growth and Shopify Inc.
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recent layoffs and disappointing financial performance. Amazon reported a second-quarter operating loss of $2.4 billion in its e-commerce business, on net sales of $101.5 billion, after posting an operating profit of $3.51 billion dollars on net sales of $98.27 billion a year ago. Analysts on average had expected an operating loss of $3.58 billion on sales of $100.18 billion, according to FactSet.

Amazon has long relied on its Amazon Web Services cloud computing service to offset thin to negative margins in its e-commerce business, but there were concerns that cloud computing growth could slow as other tech companies that rely on the service see withdrawals and cost reductions. Oppenheimer analysts predict that Amazon will also seek to lower prices on AWS.

For more: ‘People will freak out’ – The cloud boom is coming back to Earth, and it could be scary for tech stocks

“We view social media and streaming engagement trends as headwinds for AWS’s usage-based pricing model (Netflix
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and meta
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among the top 20 AWS customers, according to us). Additionally, the softness of VC funding to startups likely finds its way into the softness of AWS in 2H22 (we estimate tech startups make up 10% of AWS rounds),” the analysts wrote earlier this week, while bringing their price target on the stock down to $160. starting at $175 but maintaining an outperformance rating. “Finally, AWS has not had a price drop in the past two years. Our conversations with the industry hint at an expectation of a price drop in 2H22.”

AWS continued to grow and generate strong earnings in the second quarter. AWS generated operating profit of $5.72 billion on revenue of $19.74 billion, up from operating profit of $4.19 billion on revenue of $14.81 billion dollars a year ago, for a revenue growth rate of 33.3%. Analysts on average had expected AWS operating profit of $6.04 billion on net sales of $19.56 billion.

“AWS continues to grow at a rapid pace and we believe we are still in the early stages of enterprise and public sector cloud adoption,” Chief Financial Officer Brian Olsavsky said Thursday in a conference call.

Advertising, a healthy growth business for Amazon in recent years, saw revenue of $8.76 billion, up from $7.45 billion a year ago. Amazon began rolling out its advertising business earlier this year, and analysts expected it to achieve sales of $8.65 billion in the quarter.

For the third quarter – which will include Prime Day sales earlier this month, an event that Amazon says set record sales –Executives forecast revenue of $125 billion to $130 billion and breakeven operating profit at $3.5 billion. Analysts on average had expected operating profit of $4.39 billion on revenue of $126.49 billion, according to FactSet.

Amazon’s cost cuts showed up in its total employment — Amazon reported a workforce of 1.523 million workers at the end of the second quarter, down from 1.622 million at the end of the first quarter. This is the largest quarterly decline in Amazon’s workforce since the start of 2018, and only the third consecutive decline during this period, with the other two smaller percentage declines taking place between the fourth and the first trimester, after the holiday rush. .

“We also moved quickly to adjust our staffing levels and improve the efficiency of our expanded network of operations,” Olsavsky said. “We have slowed down our 2022 and 2023 operations expansion plans to better align with expected customer demand. Although there is still work to be done, we made good progress in the second quarter. »

Amazon’s operating expenses rose 11.9% year over year, compared to 13.2% growth in the first quarter.

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