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Stocksak: Amazon predicts holiday sales growth slowdown, crushing shares


© Stocksak. FILE PHOTO. The Amazon logo is visible at the company’s logistics center in Boves, France on October 6, 2021 REUTERS/Pascal Rossignol/File Photograph

By Jeffrey Dastin, Tiyashi Datta

(Stocksak). Amazon.com Inc. on Thursday forecasted a slowdown for the holiday season’s sales growth, disappointing Wall Street. It also warned that inflation-wary businesses and consumers had less money to buy.

Amazon (NASDAQ)’s 12% extended trade stock drop erased approximately $140 billion in its capitalization, more than the entire value companies such as Morgan Stanley (NYSE:), Netflix(NASDAQ:) Lockheed Martin (NYSE:).

The largest online retailer in the world has been fighting against macroeconomic turmoil for months. It hosted not just one, but two major sales events in a single year: Prime Day in June and the Prime Early Access Sale in this month.

The company sold more products than ever before to Prime loyalty shoppers for the summer event. Meanwhile, it sought revenue from Prime subscription fees that were higher and surcharges on certain merchants.

According to Refinitiv’s IBES data, net sales were $127.1 billion for the third quarter ended Sept. 30, which was slightly lower than the $127.5 million analysts expected.

However, the macro outlook is not improving. Brian Olsavsky (Amazon Chief Financial Officer) said that the company was expecting slower economic growth during a conference call with reporters.

He said that signs are being seen that people are tightening their budgets, inflation is still high, and that energy costs are an added layer to other problems. “We are preparing to what could be a slower period of growth, like most companies.”

He said that European consumers have spent less than their American counterparts due to higher fuel costs and the war in Ukraine. This has also led to Amazon’s expenses increasing. The company’s international-segment operation loss widened to $2.5 billion in the third quarter from $0.9 billion a year prior.

Olsavsky stated, “Amazon would continue to fund earlier stage businesses like its lucrative cloud-computing or advertising divisions, but it would question costs elsewhere, and proceed cautiously on hiring.”

Wedbush Securities analyst Michael Pachter said, “It’s possible that retail sales will decline year-over-year. I don’t actually believe that will happen, but the market definitely doesn’t like it.”

Amazon predicted net sales between $140 billion to $148 billion, which is a 2% increase over a year ago. Analysts expected $155.2 billion.

Prior holiday quarter sales growth was 9% and 38% respectively in 2021, 2020.

CLOUD MISSES

Online sales in the United States are expected to grow at their slowest rate in years this holiday season. Unilever (NYSE 🙂 PLC, a consumer goods company, also believes that “sentiment in Europe has reached an all-time low,” as its chief financial officer stated earlier.

This week’s results in the tech sector were just as bad for cloud-computing counterparts Microsoft Corp (NASDAQ) and Alphabet, (NASDAQ) Inc’s Google, further fueling recession fears. U.S. consumer optimism made a U turn in October.

“Big tech companies can’t withstand slowdowns in economic activity, especially if their business is consumer driven,” Rick Meckler of Cherry Lane Investments in New Jersey said.

Amazon Web Services (AWS) is the company’s lucrative data storage and computing division, but it only helped so far. Amazon Web Services (AWS) provided much-needed operating revenue, but it was not as successful as Microsoft’s Azure cloud.

Amazon’s cloud sales growth rate has been declining steadily over the past 12 months. After adjusting for foreign exchange changes, net sales grew 28% in July-September compared to 39% a year ago.

Paolo Pescatore is an analyst at PP Foresight. He said that there is a lot of uncertainty, which is affecting the confidence of enterprises to invest. It is also affecting companies such as AWS, Azure, and the wider cloud sector.

Amazon’s Chief Executive Officer Andy Jassy, who is facing high inflation and receding consumer demands, has taken a race to control costs across its vast array of businesses.

Amazon has slowed warehouse openings, and resisted filling some vacant positions. It announced that it would shut down its virtual health service by the year-end and that it will reduce its long-standing effort to deliver goods via small autonomous sidewalkcars.

The global shipping cost increased 10% to $19.9billion in the third quarter. Amazon’s net income decreased to $2.9Billion in the third quarter, surpassing analysts’ average estimate for a profit of $2.2B, according to IBES data compiled by Refinitiv.

In a statement, Jassy said, “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

News Source and Credit

Stocksak Editorial

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