Amazon still won’t make a profit in 2022, but don’t worry Wall Street

Amazon is still feeling the weight of its extraordinary success during the pandemic, in the face of reduced consumer spending and rising costs. As a result, for the second consecutive quarter, the e-commerce and cloud giant did not make a profit: its net loss amounted to 2 billion dollars in the last three months, and 5.87 billion dollars since the beginning of year. At the same time in 2021, the company posted $7.77 billion and $15.88 billion in net income, respectively. However, it hopes to return to profitability in the next quarter.

With 121.2 billion dollars in turnover, Amazon shows a growth of 7.2% compared to last year. But that pace, 0.1 point below the first quarter, was the company’s slowest in nearly 20 years. However, these negative results were less catastrophic than expected, pushing the action up 11% at the opening of Wall Street, to a level not reached since May. A peak to put in context: the price of Amazon has fallen by 19.8% since the beginning of the year, a trend followed by all tech stocks.

Too much headwind

If Amazon’s financial results were not approved by the markets, it was mainly because the group had to absorb 3.9 billion dollars in 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 beginning of the year. In other words, although Amazon has been far from its standards in the past two years, it has performed well despite the accumulation of headwinds hitting the entire economy and especially technology.

To begin with, the increase in the rate of the dollar compared to other currencies – and especially the euro – reduced the amount of its sales made abroad, which represented 23.8% of its income. For example, Amazon explained that the sales of its “online stores” division (which includes the e-commerce segment) fell by 4%, but that they will only stop without inflation.

After all, consumers will spend less on its platform when physical stores reopen, but also because of rampant inflation eating away at their purchasing power. To make matters worse, this inflation, combined with the war in Ukraine, has caused the cost of fuel and energy to explode, and through the rebound effect on deliveries. And this, even as global logistics are still beginning to recover from the disruption caused by the pandemic.

Despite the inflation that increases the price of fuel, energy and transportation, we are progressing with more controlled costs (…), especially by improving the productivity of our network of sorting and logistics centers“, said Andy Jassy, ​​the boss of Amazon, quoted in a press release.

So Amazon has to integrate a large number of additional costs that it cannot control. To achieve this, he passed on part of the deficit to the costs he controlled, mainly by adjusting his machine to post-Covid conditions. During the quarter, the number of employees fell by 6%, to 1.52 million, under the effects of a dismissal policy and a recruitment freeze for some positions. Brian Olsavsky, the company’s chief financial officer, has been talking since spring about a situation of “overstaffed“After two years”understaffed“.

Amazon also intends to reduce the heavy investment in infrastructure (warehouses, sorting centers, etc.) that it has made to keep up with the increase in demand during the pandemic. For buildings he does not own, he searches for “dthat way aggressiveto renegotiate lower leases and sublet to third parties.

The cloud, a tireless machine

If Amazon’s sales activity goes through a zone of turbulence, Amazon Web Services, the cloud branch of the group that largely dominates its market with 33% of the shares, continues to grow impressively. It achieved $ 19.7 billion in sales in the quarter, or 33% more than last year, a constant rate for many years.

Faced with this situation, Brian Olsavsky, the chief financial officer of Amazon, announced that he plans to focus the group’s fixed capital investments on cloud activities, at the expense of distribution activities. its distribution, its expansion is investigated. . It must be said that the cloud market, in addition to having a lot of growth potential to exploit, makes it possible to generate higher margins than distribution.

Another growth lever for Amazon, which recently showed its financial results, is online advertising. In this market investing for many years, the group achieved 8.8 billion dollars in turnover (+ 18%). Result: the good form of these two new pillars of Amazon models makes it possible to compensate for the difficulties of e-commerce. Good news in the medium term, because the crisis could last for several quarters.