Amazon still hasn’t made a profit in 2022, but don’t worry Wall Street

Amazon is still feeling the brunt of its exceptional success during the pandemic, in the face of falling consumer spending and rising costs. Result, for a second consecutive quarter, the e-commerce and cloud giant did not make a profit: its net losses amounted to 2 billion dollars over the last three months, and 5.87 billion dollars since the start of the year. At the same time in 2021, the company posted $7.77 billion and $15.88 billion in net profits, respectively. However, it hopes to return to profitability in the next quarter.

With 121.2 billion dollars in turnover, Amazon presents a growth of 7.2% compared to last year. But that pace, 0.1 points below that of the first quarter, is the company’s slowest in nearly 20 years. Still, these poor results are less catastrophic than expected, which pushed the action up 11% at the opening of Wall Street, to a level it had not reached since May. A peak to put into context: the price of Amazon has fallen by 19.8% since the start of the year, a trend followed by all tech stocks.

Too many headwinds

If the financial results of Amazon have not been sanctioned by the markets, it is above all because the group had to absorb 3.9 billion dollars of losses (before taxes) linked to its acquisition of a stake in Rivian Automotive. , up to 18%. The price of this electric car manufacturer has collapsed by 67% since the start of the year. In other words, even if Amazon is far from its standards of the last two years, it has performed rather well despite the accumulation of headwinds that are hitting the entire economy and more particularly tech.

To begin with, the increase in the rate of the dollar compared to other currencies – and in particular the euro – reduces the value of its sales made abroad, which represent 23.8% of its income. For example, Amazon explains that sales of its “online stores” division (which includes part of e-commerce) fell by 4%, but that they would simply have stagnated without inflation.

Then, consumers are spending less on its platform with the reopening of physical stores, but also because of rampant inflation which is eating away at their purchasing power. To make matters worse, this inflation, coupled with the war in Ukraine, caused the cost of gasoline and energy to explode, and by rebound effect that of deliveries. And this, even as global logistics was just beginning to recover from the disorganization caused by the pandemic.

Despite inflation driving up the price of fuel, energy and transport, we are making progress on more controllable costs (…), in particular by improving the productivity of our network of sorting and logistics centers“, said Andy Jassy, ​​the boss of Amazon, quoted in a press release.

Amazon must therefore integrate a large volume of additional costs that it does not control. To achieve this, he passes on part of the shortfall to the costs he controls, mainly by adjusting his machine to post-Covid conditions. Over the quarter, its number of employees fell by 6%, to 1.52 million, under the effects of a dismissal policy and a recruitment freeze for certain positions. Brian Olsavsky, the company’s chief financial officer, has been talking since the spring about a situation of “overstaffed“after two years in”understaffed“.

Amazon is also seeking to reduce the heavy investments in infrastructure (warehouses, sorting centers, etc.) that it had made to keep up with the increase in demand during the pandemic. For buildings she does not own, she searches “dth way agressiveto renegotiate downward leases and sublet to third parties.

The cloud, a tireless engine

If Amazon’s sales activity is going through a zone of turbulence, Amazon Web Services, the cloud branch of the group which largely dominates its market with 33% of the shares, continues its impressive growth. It achieved $ 19.7 billion in sales in the quarter, or 33% more than last year, a constant rate over several years.

Faced with this situation, Brian Olsavsky, the chief financial officer of Amazon, announced that he planned to concentrate the group’s fixed capital investments on its cloud activities, at the expense of its distribution activity, the expansion of which has been reviewed. on the decline. It must be said that the cloud market, in addition to having great growth potential to be exploited, makes it possible to generate much higher margins than distribution.

The other growth lever for Amazon, which recently appeared in its financial results, is online advertising. On this market invested for several years, the group achieved 8.8 billion dollars in turnover (+ 18%). Result: the good shape of these two new pillars of Amazon’s models makes it possible to compensate for the difficulties of e-commerce. Good news in the medium term, because the crisis could extend over several quarters.