Amazon profits weighed down by falling sales and high costs

Amazon posted its slowest-ever revenue growth in the first quarter amid falling online retail sales and high costs, and said its aggressive push to expand during the coronavirus pandemic left it overstaffed and with excess capacity.

Sales for Amazon’s online store segment were $51.1 billion between January and March, up from $52.9 billion in the same period last year.

Operating profit of $3.7 billion in the first quarter, compared to $8.9 billion a year ago, fell short of analysts’ expectations of $5.3 billion. The company posted overall revenue of $116.4 billion for the quarter, up 7% from a year ago. For the current quarter, Amazon forecasts similarly weak revenue growth of between 3% and 7%.

The results sent shares of the company down as much as 10% in after-hours trading on Thursday.

The worse-than-expected performance came as the company struggled with supply chain issues, high personnel costs and inflation.

Overall, the company posted a net loss of $3.8 billion in the quarter, including a $7.6 billion loss against the value of its stake in electric vehicle maker Rivian.

“The pandemic and subsequent war in Ukraine has brought unusual growth and challenges,” said Andy Jassy, ​​Amazon’s chief executive, but he added that delivery speeds and consistency “were approaching levels not seen since the months immediately preceding the pandemic in early 2020.”

Amazon chief financial officer Brian Olsavsky told reporters the company was backing away from aggressive warehouse space expansion during the pandemic, suggesting it had overextended capacity.

“The amount of space we’re going to add in 2022 is much less than 2021 and 2020 from a spatial perspective, and we’re even questioning that,” he said. “But you make commitments on warehouses, 12, 18 months in advance – so it’s hard to turn that into a dime.”

Unlike its unprecedented recruitment drive during the pandemic, Olsavsky said Amazon now sees itself as “overstaffed,” resulting in $2 billion in additional costs created by lower productivity rates in the quarter. . The company recorded a peak of 1.7 million employees in the quarter, which has since been reduced to 1.6 million.

Despite rapidly rising operating costs for its e-commerce business, Amazon’s balance sheet has been buoyed this year by strong growth in cloud computing.

In the first quarter, Amazon Web Services revenue was $18.4 billion, up 37% from a year ago. The cloud division’s operating profit was $6.5 billion, compared to a loss of $2.8 billion for Amazon’s retail business in the United States and the United States. international. Cloud revenue beat analysts’ expectations by $18.27 billion, according to FactSet data.

“Amazon’s results show that it is not immune to the macroeconomic slowdown affecting the rest of retail and e-commerce,” said Guru Hariharan, chief executive of CommerceIQ, a commerce management platform. electronic.

“As inflation and rising costs persist, shoppers are retreating from purchases, especially discretionary purchases, which fall disproportionately under e-commerce.”

Amazon sought to mitigate the cost of inflation by announcing an increase in the cost of its basic Prime membership program – from $119 to $139 per year – and adding a 5% fuel surcharge to deliveries made by its own logistics network.

This year, the company said high personnel costs due to retention issues and a highly competitive labor market, as well as supply chain challenges, would mean slower growth in 2022 compared to blockbuster increases fueled by the pandemic in 2020 and 2021.

Olsavsky said the company feels it’s gotten through the worst of those challenges and is in a position to start rolling back some of the incentives offered to new hires, such as $1,000 signing bonuses. “Generally through the network that has backed off,” he said.

Meanwhile, the company faces a growing spurt of unionization at its facilities. This month, workers voted to form the first union at a U.S. Amazon plant in Staten Island, New York, while voting at a second, smaller facility began this week. The result of a third vote, in Bessemer, Alabama, is pending a decision on the validity of the contested ballots.