Amazon returns to growth but signals slowness ahead

For much of this year, Amazon’s growth slowed and losses mounted as it faced high costs and changes in people’s shopping habits with the ebbing of the coronavirus pandemic.

On Thursday, the e-commerce giant signaled that its business was rebounding. But it cautioned that growth would be weak, possibly falling to its lowest level since 2001.

Amazon, which is headquartered in Seattle, posted $127.1 billion in sales for the third quarter, up 15 per cent from a year earlier, showing that high inflation has not pummeled consumer spending. It also returned to profitability, making $2.9 billion after two quarters of losses.

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At the same time, Amazon projected that sales might slow to as low as 2 per cent in the current quarter, which includes the vital holiday shopping season. That estimate, which fell far short of Wall Street’s expectations, includes a forecast that the strong U.S. dollar will continue to depress international sales.

The results come amid a rocky patch for tech giants. Microsoft, Meta and others have indicated in their earnings this week that tough days may be ahead. On Thursday, a day after Meta revealed that its profits and sales fell in the most recent quarter, the company’s stock plunged more than 24 per cent, to its lowest level in at least five years. Shares of Microsoft and Alphabet, the parent of Google, also have declined this week.

“We are seeing signs all around that people’s budgets are tight, inflation is still high, energy costs are an additional layer,” Brian Olsavsky, Amazon’s finance chief, said on a call with reporters. “We are preparing for what could be a slower growth period.”

He added that demand was particularly weakening in Europe, where inflation and rising fuel costs from the war in Ukraine have affected consumers.

Amazon’s stock dropped more than 19 per cent in after-hours trading.

Prices are rising, but the volume of items selling is falling, said Guru Hariharan, whose company, CommerceIQ, advises large consumer brands that sell products on Amazon. “That is a very concerning trend,” he said.

After two years of breakneck expansion, Amazon has spent much of this year putting on the brakes. Andy Jassy, who took over as CEO last year, has moved to swiftly cut costs after the company overbuilt in anticipation of an extended pandemic-fueled boom in e-commerce. Amazon has curtailed plans to open warehouses and worked to improve the efficiency of its fulfillment operations, and it imposed a hiring freeze for corporate and technology roles for its retail division.

In the third quarter, Amazon benefited from its annual two-day Prime Day sale in July. In previous year, Prime Day had been held earlier than July. The company called this year’s event its “biggest ever,” and it generated about $6.8 billion in revenue — about $5 billion more than a typical two days — according to estimates from the investment bank Cowen.

Growth in Amazon’s cloud computing division was the slowest on record, increasing 27 per cent to $20.5 billion. Amazon Web Services accounted for 16 per cent of the company’s total sales but was the only division that produced an operating profit. Olsavsky said growth slowed in the late summer, as Amazon saw a “lot of customers cutting their bills, which we are glad to help with.”

Its international operations, dragged down by the strong dollar, generated $2.5 billion in operating losses.

The company employed 1.5 million people by the end of the third quarter, almost 100,000 fewer than at the start of the year.

Olsavsky said Amazon generated more than $1 billion in productivity savings, about a half-billion dollars less than executives had hoped. The cost to ship products grew more slowly than the number of units it sold. But the depressed sales growth makes it harder to operate at optimal efficiency, Olsavsky said, because the company can best use its fulfillment and delivery infrastructure when it has more orders.

Amazon’s lucrative advertising business, which Morgan Stanley estimates is worth about $185 billion, grew 25 per cent to $9.5 billion, although there was a slowdown over the quarter as advertisers pulled back. The company’s subscription business, primarily Prime membership, grew 9 per cent to $8.9 billion.

Olsavsky said overall operating profit was reduced by high costs to market two major video offerings for Prime members — Thursday night football games with the NFL, and its new “Lord of the Rings” series.

In addition to the volatile economic environment, the value of Amazon’s investment in Rivian Automotive, an electric truck maker that has struggled to meet production goals, has added fluctuations to Amazon’s profits this year. That valuation rose $1.1 billion, contributing to Amazon’s profits in the latest quarter.