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Amazon’s $2 Billion Loss Don’t Faze Investors

Investors weren’t phased by Amazon.com Inc.’s back-to-back quarterly losses, after the e-commerce giant reported better-than-expected sales for the second quarter and offered an upbeat outlook.

The company’s stock jumped nearly 14 percent to $139.16 in after-hours trading Thursday following the release of the quarterly results. Amazon had a recent market cap of $1.2 trillion.

Net sales for the company totaled $121.2 billion in the quarter, beating analyst expectations of $119.1 billion.

Meanwhile, the company reported a net loss of $2 billion, missing analyst estimates of $1.3 billion in net income.

Even with the second quarter in a row of losses, Amazon’s outlook offered a rosy view on its efforts to rein in costs, amid inflation.

The company said it’s forecasting net sales of $125 billion to $130 billion in the current quarter, with the mid- to high end of the range coming in higher than analyst estimates of $126.4 billion.

In a Nutshell: Costs and how the company’s handling them were a big part of Thursday’s earnings call with analysts.

Inflation remains at elevated levels and in line with what the company saw in the prior quarter, chief financial officer Brian Olsavsky told analysts. Higher prices for fuel, trucking, air and ocean are expected to continue in the current three-month period, he added.

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The CFO went on to say the company’s made “good progress” in aligning its operational expenses and fulfillment network with customer demand.

The company ramped hiring in the first quarter in response to the rise of Omicron cases, hiring 14,000 workers in the period. That compares with a headcount reduction of 27,000 in the first quarter of 2021.

Amazon has since worked to right-size its headcount by slowing its hiring cadence and also through natural attrition.

“Right now, we see a stabilization in the workforce. We see good hiring rates. As you can remember, it was a very difficult labor period the second half of last year…. So, we’re certainly diligent on that and making sure we have a good workplace and an environment that will attract employees,” Olsavsky said.

Amazon built out its fulfillment network to meet soaring demand during the height of the pandemic, but encountered excess fulfillment and transportation capacity earlier in the year.

“We made strides to improve fulfillment network productivity in Q2,” Olsavsky said. “Staffing levels were more in line with rising Q2 demand. We saw better optimization of our fulfillment network. On the transportation side, we continued to improve delivery route density and improved package deliveries per hour. We’re encouraged by the progress during the quarter and see opportunity to further improve in the second half of the year.”

The company in May was reportedly considering subleasing some of its warehouse space in an effort to bring its fulfillment system’s size in line with the market.

Net Sales: Amazon reported net sales up 7 percent from the year-ago period to $121.2 billion in the second quarter.

Online sales, the largest share of total sales, was $50.9 billion in the quarter, down 4 percent from a year ago.

The company wrapped its two-day Prime Day promotional event earlier this month, with more than 300 million items purchased.

Amazon also worked on bolstering its overall online shopping experience with the additions of a free Grubhub+ membership for a year to Prime members, a virtual try-on feature for footwear in some European markets, the launch of delivery by drone and also continues to crack down on fake reviews.

Third-party sales, the next largest revenue stream for Amazon that includes fulfillment and shipping fees, generated $27.4 billion in sales, up 9 percent from a year earlier.

The company’s cloud services division, Amazon Web Services, spiked 33 percent to $19.7 billion in the quarter, driven by business from Delta Air Lines, Riot Games and Jefferies among other companies.

Advertising and subscription services are roughly the same with second-quarter sales totaling $8.8 billion and $8.7 billion, respectively. That was up 18 percent and 10 percent, respectively, from the prior-year period.

Licensing and distribution of shipping and other services, along with credit cards, saw the largest jump in sales of 131 percent to $1.1 billion.

Net Loss: Electric vehicle maker Rivian Automotive Inc.’s valuation continued to be a drag on the company’s earnings, with the second quarter marking Amazon’s second quarterly loss in a row.

The company attributed a portion of it to the $3.9 billion pre-tax valuation loss from its investment in Rivian. Amazon holds about an 18 percent stake in the vehicle maker.

Last week Amazon’s delivery vans made by Rivian began rolling out in markets such as Chicago, Nashville, Kansas City, Dallas, Phoenix, San Diego, Seattle, St. Louis and Baltimore. The two companies had been piloting the vans in select cities last year in the lead up to the launch, which is expected to see the vehicles in use in more than 100 cities by year end.

Amazon has an order with Rivian for 100,000 of its delivery vans to be delivered by 2030 and is the vehicle maker’s first commercial customer outside of the two vehicle models it currently offers within its consumer lineup.

CEO’s Take: Amazon’s firming up its grip on headwinds, and that work began to take hold in the quarter.

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

Amazon Prime’s also continued to get “even better for members,” Jassy said, pointing to speedier shipping and the more recent Grubhub promotion among other perks.