Amazon stock jumps 12% as sales win and AWS growth beats second consecutive quarterly loss

Amazon.com decided to cut expenses after years of pumping money into growth, and the result was its second consecutive quarterly loss, but outperforming sales and continued strong growth from Amazon Web Services helped propel the stock higher in after-hours trading Thursday.

Amazon AMZN,
+ 1.08%
The company reported a loss of $2 billion, or 20 cents a share, on sales of $121.2 billion in the second quarter, after reporting earnings of 76 cents a share on revenue of $113.08 billion a year earlier. Previous year results were revised to split Amazon shares by 20 to 1, and second-quarter results include a loss of $3.9 billion as a result of a valuation decline for an investment in Rivian Automotive Inc. RIVN,
+ 5.73%.
This is the first time that Amazon has recorded consecutive quarterly losses since the second and third quarters of 2014.

Analysts on average expected Amazon to report earnings of 12 cents a share on $119 billion in sales, according to FactSet, after executives reported a surprise loss and a weaker-than-expected forecast three months ago and said they would cut costs. At the time, executives said they faced $6 billion in additional costs during the first quarter, of which $2 billion was as a result of lower productivity, and they expected $4 billion in such costs in the second quarter as the cuts begin.

“Despite continued inflationary pressures in fuel, energy and transportation costs, we are making progress on the more manageable costs we noted in the past quarter, particularly improving the productivity of our fulfillment network,” CEO Andy Gacy said in a statement included with the results. . Thursday, adding, “We’re also seeing an acceleration in revenue.”

Amazon shares jumped more than 12% in after-hours trading immediately after the results were released. The stock has been under pressure since Amazon reported its first quarterly loss in seven years, dropping 16% in the past three months as the S&P 500 SPX,
+ 1.21%
It decreased by 6.2%.

E-commerce has plummeted as the world enters the third year of the COVID-19 pandemic, as evidenced by Amazon’s struggles to support its explosive growth and Shopify Inc.
+ 1.90%
Recent layoffs and disappointing financial performance. Amazon reported a second-quarter operating loss of $2.4 billion in its e-commerce business, on net sales of $101.5 billion, after posting $3.51 billion in operating profit on net sales of $98.27 billion a year earlier. Analysts, on average, expected an operating loss of $3.58 billion on sales of $100.18 billion, according to FactSet.

Amazon has long relied on its cloud computing service Amazon Web Services to offset the slim to negative margins on its e-commerce business, but there have been concerns that cloud computing growth could slow, as other tech companies that rely on the service see pull out and cut costs. Oppenheimer analysts expected Amazon to look to lower prices on AWS as well.

More info: ‘People will freak out’ – the cloud boom is back on Earth, and it could be scary for tech stocks

“We view social media engagement and streaming trends as a revenue headwind for AWS’ usage-driven pricing model (Netflix NFLX,
-0.32%And the
snap SNAP,
+ 1.26%And the
spotify spot,
-1.73%And the
pinterest pins,
+ 0.52%And the
and Meta META,
-5.22%And the
Among the top 20 AWS clients, in our opinion). Additionally, VC funding flexibility for startups is likely to find its way into AWS softness in the second half of 2022 (we estimate that tech startups make up 10% of AWS cycles),” analysts wrote earlier this week. , while lowering their target price per share to $160. from $175 while maintaining a superior rating.” Finally, AWS has not undergone price cuts in the past two years. Industry talks suggest a price cut is expected in the second half of 2022.”

AWS continued to grow and posted strong profits in the second quarter. AWS generated operating income of $5.72 billion on revenue of $19.74 billion, up from operating profit of $4.19 billion over revenue of $14.81 billion a year earlier, with a revenue growth rate of 33.3%. Analysts expected AWS to have average operating income of $6.04 billion on net sales of $19.56 billion.

“AWS continues to grow at a rapid pace and we believe we are still in the early stages of enterprise and public sector adoption of cloud computing,” Chief Financial Officer Brian Olsavsky said on a conference call Thursday.

Advertising, a business that has grown healthily for Amazon in recent years, posted revenue of $8.76 billion, up from $7.45 billion a year ago. Amazon began blasting its advertising business earlier this year, and analysts expected $8.65 billion in sales this quarter.

For the third quarter — which will include sales from Prime Day earlier this month, an event Amazon said set record sales — the executives were guided by revenue ranging from $125 billion to $130 billion and operating income equivalent to $3.5 billion. Analysts, on average, expected $4.39 billion in operating income and $126.49 billion in revenue, according to FactSet.

Amazon’s cost cuts showed up in total employment — Amazon reported a workforce of 1.523 million workers at the end of the second quarter, down from 1.622 million at the end of the first quarter. This is the largest quarterly decline in Amazon’s workforce in records dating back to the beginning of 2018, and only the third of a sequential decline at the time, with the other two smaller percentage declines between the fourth and first quarters, following the holiday rush.

“We have also moved quickly to adjust our staffing levels and improve the efficiency of our expanded network of operations,” Olsavsky said. We have slowed down our operations expansion plans for 2022 and 2023 to better align with expected customer demand. While there is still work to be done, we made good progress in the second quarter.”

Amazon’s operating expenses grew 11.9% year over year, down from 13.2% growth in the first quarter.

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