Company / Analytics

Analytics, 29 April 2022

Amazon’s Quarterly Loss – Analysis & Outlook

E-commerce giant Amazon reported first quarter 2022 earnings that missed on earnings but matched revenue expectations.

Net losses include a pre-tax valuation loss of $7.6 billion in non-operating expense coming from Amazon’s investment in Rivian Automotive Inc. after shares in the electric vehicle firm lost more than half their value in the quarter. But revenue exceeded consensus estimates after rising 7% during the first quarter.

Amazon still recorded the slowest growth rate for any quarter since the dotcom bust in 2001 and the second straight period of single-digit growth. It was the first time in four years that the tech company posted a net loss.

Amazon’s second-quarter outlook suggests growth could fall further - to between 3% and 7% from last year, below analyst estimates. Similar to Google and Facebook earlier this week, Amazon attributed its slow growth to macroeconomic conditions the conflict in Europe.

Though the stock has fallen about 9% since the earnings report, most analysts still maintain a buy rating on the stock, noting the continuous growth of Amazon’s cloud segment (Amazon Web Services – AWS) and its ads segment compared to its competitors Google and Facebook.

Amazon’s Quarterly Earnings

Amazon reported first quarter revenue of $116.44 billion, above estimates of $116.3 billion. The company missed earnings estimates after it reported earnings per share (EPS) of $7.38, below estimates of $8.36.

Amazon’s high-margin cloud computing business outperformed, recording a $18.44 billion sales against analysts estimates of $18.27 billion expected. This marked a 37% year-over-year (YOY). Amazon said that the growth of Amazon Web Services (AWS) was driven by new commitments from customers across industries such as telecommunications, aerospace, sports, technology, and healthcare. AWS was the only one of Amazon’s segments to report net operating income for the quarter.

Amazon’s AWS business generates much higher margins than its e-commerce business. In FY 2021, Amazon’s global retail sales- and subscription-based business segments generated about 87.5% of the company’s total revenue, while AWS accounted for a mere 12.5%. However, AWS accounted for 63.3% of total operating income for the year, making it Amazon’s main profit generator.

Meanwhile, The advertising segment lagged, registering sales of $7.88 billion, against analyst expectations of $8.17 billion expected.

What is the Amazon’s outlook?

Amazon suggested its second-quarter growth could fall further to between 3% and 7% compared to last year. The company projects revenue of $116 billion to $121 billion, missing the $125.5 billion average analyst estimate.

Amazon forecasts the slow growth will be caused by macroeconomic conditions and spill overs coming from Russia’s invasion of Ukraine. Other tech heavyweights including Google and Facebook earlier this week attributed their losses to similar conditions.

Like most corporations, Amazon continues to navigate a host of economic challenges, including rising inflation, higher fuel and labour costs, global supply chain snarls, and the ongoing pandemic. These conditions for example resulted in the company increasing the costs of some of its products including introducing a 5% surcharge for some of its U.S. sellers, increasing the price of Prime membership in the U.S from $119 to $139, the first time in four years.

Forecast - should I buy Amazon Stock?

Though Amazon is among U.S. tech companies reporting disappointing reports this quarter, its business continues to grow. For example, in addition to the impressive growth of its cloud segment, its advertising segment continues to grow – the segment grew 23% year over year, a faster expansion than its ad peers such as Google whose ads revenue increased only 22% following slow growth by YouTube. Meanwhile, Facebook’s ad revenue rose by just 6.1% - it’s weakest expansion since its listing 10 years ago.

The current consensus among 52 polled investment analysts is to buy stock in Amazon.com Inc. Meanwhile, the 46 analysts offering 12-month price forecasts for Amazon.com Inc have a median target price of 3,925.00, with a high estimate of 5,000.00 and a low estimate of 2,590.00. The median estimate represents a +56.51% increase from the last price of 2,507.86.

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