Amazon Posts First Net Loss Since 2015, Amid Challenging Market

Amazon has posted disappointing first quarter results as the e-commerce giant battled to overcome higher costs associated with its warehouses, plus the rising cost of fuel.

This meant the tech giant posted its first ever net loss since 2015, which was mostly down to its investment in electric vehicle maker Rivian (it has a 20 percent stake in the EV maker). Amazon lost $7.6bn after shares in Rivian collapsed, falling by more than 50 percent.

And the firm warned that there may be more losses ahead, which saw shares in the firm falling 9 percent in after-hours trading.

Amazon financials

Amazon is also having to contend with ongoing supply chain issues, inflationary pressures, growing attempts among staff to unionise, higher fuel prices (which limits consumers’ disposable income and makes deliveries more expensive), and having to pay higher wages in order to attract workers.

Amazon pointed out that for the second year in a row, it has been ranked number one in the US on LinkedIn’s annual Top Companies list for worker skills, career progression etc.

Digging into the results, for the first quarter ending 31 March, Amazon posted a net loss of $3.8bn, compared to a net profit of $8.1bn in the same year-ago quarter.

Revenues however grew 7 percent from $108.5bn to $116.4bn in the same year-ago quarter.

Amazon also posted net losses associated with its purchases of property and equipment, which rose from $12bn to $14.9bn in the first quarter.

However one of the bright spots for CEO Andy Jassy, was Amazon Web Services (AWS), as revenue in the first quarter rose from $13.5bn a year ago, to $18.4bn in the first three months of 2022.

Ukraine war

“The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” said Jassy. “With AWS growing 34 percent annually over the last two years, and 37 percent year-over-year in the first quarter, AWS has been integral in helping companies weather the pandemic and move more of their workloads into the cloud.”

“Our Consumer business has grown 23 percent annually over the past two years, with extraordinary growth in 2020 of 39 percent year-over-year that necessitated doubling the size of our fulfillment network that we’d built over Amazon’s first 25 years – and doing so in just 24 months,” said Jassy, which provides an explanation for the warehousing net losses and costs.

“Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network,” said Jassy. “We know how to do this and have done it before.”

“This may take some time, particularly as we work through ongoing inflationary and supply chain pressures, but we see encouraging progress on a number of customer experience dimensions, including delivery speed performance as we’re now approaching levels not seen since the months immediately preceding the pandemic in early 2020,” Jassy concluded.

Looking forward

The results are a long way from the past couple of years.

Amazon of course was one of the big winners of the Covid-19 pandemic, during which it recorded large jumps in sales as housebound consumers moved to shopping online, and companies turned to AWS to run their businesses.

Amazon also closed its $8.5bn acquisition of film studio MGM, giving it more than 4,000 film titles and 17,000 TV episodes to add to its Prime Video service.

Prime’s eagerly awaited ‘The Lord of the Rings: The Rings of Power‘ will debut on Friday, 2 September this year.

Looking forward, Amazon did not offer much cheers, saying its “results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the Covid-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, labour market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services.

In the second quarter net sales are expected to be between $116 billion and $121 billion, or to grow between 3 and 7 percent compared with second quarter 2021.

Cloud reliance

Industry watcher Marina Koytcheva, VP forecasting at CCS Insight pointed out that Amazon wil have to lean on further digitalisation to help offset difficulties in its traditional retail operations.

“When you are one of the largest retailer in the world, adverse macroeconomic conditions and turbulent political landscape inevitably bite, and this is the story of Amazon’s retail business this quarter, hit by increased costs,” noted Koytcheva.

“Even though Amazon brushed aside suggestions of macroeconomic factors affecting its outlook, falling consumer and business confidence in the face of high inflation and elevated war rhetoric, combined with another major disruption to supply chains in China, spells more troubles this quarter, and possibly further ahead in the year,” said Koytcheva.

“Amazon has its high-flying cloud business to lean on to: further digitalisation is a must for all businesses, large and small, and Amazon Web Services’ strong position across geographies will provide support for the company, as its retail business faces tough few months or quarters ahead,” Koytcheva concluded.