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Amazon Reports $3.8 Billion Loss

Inflation across a number of levers continues to stare down Amazon.com Inc.

Rising transportation rates, labor and other increased costs are now weighing on the e-commerce behemoth as it aims to trim inefficiencies out of its network.

Shares of Amazon plunged in after-hours trading Thursday after the company reported disappointing first-quarter earnings results and sales guidance for the current quarter below Wall Street expectations.

Shares of the company were down 9.1 percent to $2,631 and a market cap of $1.5 trillion following the quarterly results.

Amazon swung to the red with a first-quarter net loss of $3.8 billion, compared to net income of $8.1 billion in the year-ago period and missing analyst expectations of $4.3 billion.

Meanwhile, net sales came in at $116.4 billion in the quarter, just edging past the $116.3 billion analysts on average expected.

The company is guiding sales in the current quarter to be in the range of $116 billion to $121 billion, falling short of the $125.6 billion analysts estimated.

In a Nutshell: Inflation dominated the earnings call with analysts Thursday evening.

“We have worked to protect and enhance the customer experience, despite a sharp increase in costs, particularly over the past three quarters,” chief financial officer (CFO) Brian Olsavsky told analysts. “We’ve seen a large cost to keep up with demand these past two years…. Labor and physical space are no longer the bottlenecks they were throughout much of 2020 and 2021. However, we continue to face a variety of cost pressures in our consumer business.”

That includes transportation costs on the air and ocean side, which Olsavsky said are either in line or higher than what rates were in the back half of last year. The war in Ukraine has also pushed fuel prices up, the CFO noted.

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Consumer demand continued to drive the growth of Amazon’s logistics business, with its fulfillment capabilities doubling over the past two years.

A recently announced program, called Buy with Prime, that opens up the Prime program to retailers outside of the Amazon marketplace for the first time ever is likely to only continue driving the growth of Amazon’s logistics services.

Olsavsky pointed out the company has excess fulfillment and transportation capacity it will need to grow into. This is due to the buildout of the network during the height of the pandemic, in 2020 and early 2021, as the company forecasted on the higher end of demand.

“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network. We know how to do this and have done it before,” CEO Andy Jassy said in a statement. “This may take some time, particularly as we work through ongoing inflationary and supply chain pressures, but we see encouraging progress on a number of customer experience dimensions, including delivery speed performance as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020.”

Net Sales: Amazon reported $116.4 billion in net sales for the recently ended quarter, which is up 7 percent from a year ago and above the $116.3 billion Wall Street analysts expected.

The greatest chunk of that revenue is generated from the company’s online retail, which totaled $51.1 billion in the quarter. That was down 3 percent from a year ago.

Amazon Web Services (AWS) notched the greatest year-over-year change in the quarter, up 37 percent to $18.4 billion. The company added a number of new customers during the three-month period, including Boeing and Verizon.

Advertising services saw the next largest jump in growth, totaling 23 percent to $7.9 billion. The segment includes sponsored ads, display and video for sellers and vendors among other customers.

Subscription services—which includes the company’s Amazon Prime memberships, audio books and other subscriptions outside of AWS—made the next largest year-over-year change of 11 percent to $8.4 billion.

Prime continues to be a key growth driver, according to Olsavsky, with spending among members up since the start of Covid.

Meanwhile, third-party sales, which include fulfillment and shipping fees, rose 7 percent to $25.3 billion.

Net Earnings: The freefall of Rivian Automotive Inc.’s valuation proved a drag on Amazon’s earnings in the quarter.

The company noted a $7.6 billion pre-tax valuation loss resulting from the electric vehicle maker, which has an agreement to make 100,000 of its delivery vans for Amazon.

Rivian, which went public in November at $78 a share, has seen its market cap high of $153.3 billion fall to a more recent $28.4 billion.

The company, like many automakers, has been hampered by parts shortages due to the supply chain crisis that have caused it to miss production targets.

Rivian’s shares were down 3.1 percent to $31.17 in after-hours trading Thursday.

CEO’s Take: Jassy, who remained off the line during Thursday’s earnings call, succinctly summed up the current situation in a statement: “The pandemic and subsequent war in Ukraine have brought unusual growth and challenges.”

He went on to review the quarter, mostly calling out the strides the company has made in some of its business segments. The CEO, more specifically, pointed to the consumer and AWS divisions’ growth over the past two years in the company’s prepared earnings statement.