Amazon Predicts Strong Consumer Demand, As Its Stock Rises 13%

Amazon.com Inc said it expects third-quarter revenue to increase as the business collects higher fees from Prime loyalty subscriptions and consumer demand remains strong despite rising inflation. Shares of the world’s largest online retailer gained 13% in after-hours trading, boosting its market capitalization by more than $150 billion.

Amazon, like much of the retail business, is coming to terms with a reckoning. Walmart Inc announced this week that it will make significantly less money this year than previously anticipated. Consumer confidence in the United States has recently reached an all-time low, and some people are sticking to lower-cost necessities to deal with the economy’s difficulties.

This has not deterred Amazon. According to IBES data from Refinitiv, the online retailer anticipated net sales between $125 billion and $130 billion for the summer season, while experts expected only $126.42 billion.

Chief Executive Andy Jassy stated in a news release that the company is “seeing revenue increase as we continue to make Prime even better for members, both investing in quicker shipping speeds and introducing unique advantages like free delivery from Grubhub for a year.”

Amazon had more goods in stock than it did before the COVID-19 epidemic began in early 2020, according to Chief Financial Officer Brian Olsavsky on a conference call with reporters.

According to press releases, Amazon nearly increased the number of things it could deliver within one day after purchase, demonstrating headway on a long-term commitment. Its July marketing event, Prime Day, was the most successful in terms of unit sales.

“It looks like Amazon is finally primed to turn the corner after a rocky couple of quarters,” Insider Intelligence analyst Andrew Lipsman said.

When asked about Walmart and customer purchasing patterns, CFO Olsavsky stated, “We did not detect a step down in June.”

Nonetheless, sales growth in certain of the retailer’s business sectors has slowed year on year. In North America, the company’s largest market, net sales increased 10% in the second quarter, compared to a 22 per cent increase in the same period last year. Its overseas division experienced a 12 per cent drop in revenue.

Consumer CEO Dave Clark and corporate affairs head Jay Carney, as well as two of the company’s most senior Black executives, have left in a changing of the guard. A period of record profit gave way to Amazon’s first quarterly loss in seven years in the first quarter of 2022.

Finally, Amazon lost $2 billion in the second quarter, including a $3.9 billion pre-tax valuation loss on its investment in Rivian Automotive Inc. (RIVN.O). However, the corporation exceeded forecasts by recording operational income of $3.3 billion, owing solely to its thriving cloud-computing division. According to research firm FactSet, analysts had anticipated $1.8 billion on average.

According to Olsavsky, the company’s extra costs from inflation, productivity, and other issues were $4 billion, which was in line with Amazon’s forecasts and approximately $2 billion less than it faced at the start of the year.

After racing to meet demand during the pandemic’s peak, expanding its fulfilment network in only two years, the company has been halting warehouse additions to cut expenses.

It has stopped a major office space development in Bellevue, Washington, and has not filled empty roles at some facilities, resulting in a decrease in full and part-time workforce from the March quarter.

It has also boosted some pricing. Olsavsky stated that subscription retention was as good as or better than the business expected after raising U.S. costs for its fast-shipping club Prime.

Amazon Web Services, the company’s cloud computing subsidiary, also outperformed expectations. The segment earned $19.7 billion, exceeding the $19.5 billion analysts predicted Amazon would earn in the second quarter.

When asked about a potential slowdown, Olsavsky remarked on an investor call that a downturn in 2008 caused enterprises to choose Amazon’s cloud services over building their own data centres, giving AWS a boost. Rival Microsoft Corp stated earlier this week that its fiscal-year revenue would increase due to increased demand for its cloud services.

Adjusting for items, Amazon earned 18 cents per share, exceeding the consensus of 13 cents per share, according to Refinitiv IBES data.

(Adapted from CNBC.com)

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