Amazon
Another challenge that Amazon faces is the unionization of its warehouses which could lead to higher costs and compressed margins. And, it also faced tough comps compared to last year when the pandemic was still raging leading to more e-commerce purchases, and people's pockets were flush with stimulus payments.
Inside the Numbers
In Q1, Amazon reported $7.38 per share in adjusted earnings which fell short of expectations of $8.36 per share. The adjusted measure doesn't take into account the impact of Rivian. Revenue just beat at $116.4 billion vs. $116.3 billion.
Amazon Web Services (AWS) revenue came in at $18.4 billion, beating expectations of $18.3 billion and 37% above last year.
Ad revenue fell short of expectations at $7.9 billion vs. $8.2 billion. This continues to be Amazon's fastest-growing segment with 23% growth compared to last year. And, there was a writedown of $7.6 billion which pushed it to a net loss for the quarter.
Revenue growth also slowed to 7%, a sharp drop from 44% last year. Its forecast for next quarter also disappointed as the company sees between 3% and 7% revenue growth, which fell short of expectations of 9% growth.
The company says this weakness is due to the impact of the pandemic and the war in Europe on sales and sellers on its platform having less inventory. For much of the past 2 years, the company has been focused on increasing its capacity by increasing its workforce and warehouse network. Now, the company is looking to reduce costs.
The company is sensitive to inflation due to its massive workforce, higher fuel costs, rising wages, and higher transportation costs. The company did introduce a 5% surcharge to sellers, and it increased the price of Prime to $139 per year from $119 per year. Still, profit margins have declined to 3.2% from 8.2% last year.
The company did note improvement in measures like delivery speed and fulfillment which bodes well for better logistics in the coming quarters which could indicate a cooling-off period for inflation.
