Amazon jumps to revenue pace and rosy outlook for third quarter

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Amazon shares rose more than 12% in extended trading on Thursday after the company reported better-than-expected second-quarter earnings and gave an optimistic outlook.

This is how the company did it:

  • EPS: Loss of 20 cents
  • Revenue: $121.23 billion versus $119.09 billion expected, according to Refinitiv

Here’s how other major Amazon segments fared this quarter:

  • Amazon Web Services: $19.7 Billion vs. $19.56 Billion Expected, According to StreetAccount
  • Commercial break: $8.76 Billion vs. $8.65 Billion Expected, According to StreetAccount

Second quarter revenue growth of 7% exceeded estimates and bucked the trend of its tech peers, all of whom have reported disappointing results.

Amazon expects to achieve revenue of between $125 billion and $130 billion in the third quarter, representing 13% to 17% growth. Analysts expected revenue of $126.4 billion, according to Refinitiv.

Amazon faces increased costs as pandemic-driven expansion has left the company with too many employees and too much warehouse capacity.

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

Amazon reduced its workforce by 99,000 people to 1.52 million at the end of the second quarter.

Amazon posted a $3.9 billion loss on its investment in Rivian after the electric vehicle maker’s shares fell 49% in the second quarter. That brings the total loss on the investment this year to $11.5 billion.

As a result of Rivian’s write-off, Amazon suffered an overall loss of $2 billion in the quarter. Analysts’ EPS estimates have varied widely, making it difficult to compare the actual results with a consensus figure.

Amazon’s core e-commerce business continues to suffer as online sales no longer thrive as they did at the height of the Covid-19 pandemic. The company’s online store segment was down 4% year over year. Physical store sales continued to recover compared to the same period last year, with growth of 17%.

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Amazon’s advertising business is a bright spot in an otherwise bleak quarter for online advertising, showing that the company is gaining market share in one of its fastest-growing companies.

Advertising revenue increased 18% over the period. Facebook posted its first-ever revenue drop this week and forecast another drop for the third quarter. At Alphabet, ad growth slowed to 12% and YouTube showed a dramatic slowdown from 84% a year earlier to 4.8%.

Among the other top tech companies, Microsoft also reported disappointing results this week. Apple hit the top and bottom lines, lifting the stock in after-hours trading.

Amazon’s cloud segment just keeps humming along. Amazon Web Services revenue rose 33% year-on-year to $19.74 billion, above the $19.56 billion forecast by Wall Street.

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Operating income, excluding investment-related loss, shrank to $3.3 billion from $7.7 billion a year earlier.

AWS generated operating income of $5.7 billion, accounting for Amazon’s entire profit plus a portion for the period.

The positive results may also help improve the mood around Jassy, ​​who replaced Jeff Bezos as CEO just over a year ago. Jassy’s first year on the job was marred by challenges, including an ongoing labor struggle, the downturn in the market, increasing regulatory pressure and an exodus of top talent.

He is also under pressure to show he can return Amazon’s core businesses to the growth investors have become accustomed to, a difficult task given the many macro pressures the company faces, such as rising inflation and slowing consumer spending.