Amazon shows it can drive sales while slowing spending

Amazon.com Inc. has shown that its e-commerce and cloud computing businesses can generate revenue even as consumers worry about inflation and the company takes spending cuts seriously. Investors sent shares up more than 12% in premarket trading on Friday.

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(Bloomberg) – Amazon.com Inc. has shown its e-commerce and cloud computing businesses can generate revenue even as consumers worry about inflation and the company takes cuts seriously. expenses. Investors sent shares up more than 12% in premarket trading on Friday.

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Amazon on Thursday reported second-quarter sales that beat analysts’ estimates and gave a revenue forecast of up to 17% growth for the current period.

As he focuses on reviving sales, CEO Andy Jassy is determined to unravel a pandemic-era expansion that has plagued Amazon with a glut of warehouse space and too many employees. Fulfillment spending rose 14% to $20.3 billion, virtually the same as in the previous three-month period, and less than analysts had expected. At the same time, the former Amazon Web Services executive will spend money on the profitable market-leading cloud unit to take advantage of growth potential.

“Despite continued inflationary pressures on fuel, energy and transportation costs, we are making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” said Jassy said in the statement.

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Chief Financial Officer Brian Olsavsky pointed out that Amazon added jobs at the slowest pace since 2019 – now employing more than 1.52 million full-time and part-time workers – and that its total workforce was around 100. 000 less than in the previous quarter. Capital expenditures for warehouses and transportation are falling, but the company is spending more on AWS, including engineers and data centers, he said.

“We know AWS is a huge opportunity” and that governments and businesses are still at the beginning of the demand curve, Olsavsky said.

AWS generated sales of $19.7 billion in the period ended June 30, beating the average analyst estimate of $19.4 billion. The company now owns 34% of the nearly $55 billion cloud infrastructure services market, according to Synergy Research Group. Advertising services, another cash cow, rose 14% to $8.76 billion.

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With costs rising, Amazon raised the price of a Prime subscription in the United States in February, then followed this week with similar hikes in Europe. This did not faze consumers. Subscription revenue rose 14% to $8.72 billion, reversing three consecutive quarters of slower growth.

What Bloomberg Intelligence says:

“Better-than-expected Q2 results and an upbeat Q3 sales forecast show that Amazon is better positioned to weather inflationary pressures and benefits from a more affluent customer. This is unlike Walmart, which sees the consumers turn to low-margin categories.

— Poonam Goyal, Senior Industry Analyst Retail BI

Click here to read the research.

“The next two quarters will feature Prime Day events that should reinvigorate e-commerce momentum,” said Insider Intelligence analyst Andrew Lipsman. “This will drive growth and reduce churn, while also giving a boost to the advertising business that is increasingly responsible for Amazon’s bottom line. It looks like Amazon is finally ready to turn the corner after a few hectic quarters.

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With online sales slowing, Jassy is looking for new sources of revenue. Earlier this month, Amazon said it would buy primary care company One Medical in an all-cash deal worth $3.49 billion. The startup operates clinics in cities across the United States and bolsters Amazon’s push into the healthcare sector.

During the quarter, sales increased 7.2% to $121.2 billion. Amazon said it posted a net loss of $2 billion, or a loss of 20 cents per share, compared with net income of $7.8 billion, or 76 cents per share, in the year-ago quarter . The company attributed the loss to its investment in electric vehicle maker Rivian Automotive Inc.

Current-quarter operating profit will go from break even to $3.5 billion on sales of up to $130 billion, the Seattle-based company said. Analysts on average had expected a profit of $3.83 billion on sales of $127 billion, according to data compiled by Bloomberg.

The shares hit an extended trading high of $139.39 after closing at $122.28 in New York. Shares have fallen nearly 27% this year amid a broader market slowdown.

“It’s important for Jassy to reinforce its commitment to retail and recognize that it needs to make spending more correlated with revenue growth,” said Michael Pachter, analyst at Wedbush Securities Inc.

(Update with shares)



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