Amazon sees resilient consumer demand as shares jump 13%, Marketing & Advertising News, ET BrandEquity

Amazon.com Inc said Thursday it expects revenue to rise in the third quarter as the retailer collects higher fees on Prime loyalty subscriptions and consumer demand remains high despite rising inflation.

Shares of the world’s largest online retailer rose 13% in trading after the bell, boosting its market valuation by more than $150 billion.

Amazon, like much of the retail industry, is facing a settling of scores. Main rival Walmart Inc said this week that it will earn significantly less this year than expected. U.S. consumer confidence has recently fallen to a low, and some are sticking to low-cost necessities to weather the economic woes.

That didn’t stop Amazon. The online retailer was forecasting net sales between $125 billion and $130 billion for the summer period, while analysts expected just $126.42 billion, according to IBES data from Refinitiv.

In a press release, Chief Executive Andy Jassy said the company “sees revenue accelerating as we continue to make Prime even better for members, both by investing in faster shipping speeds and adding unique perks like free shipping from Grubhub for a year.”

In a positive sign for its operation, Amazon had more goods in stock than before the COVID-19 pandemic began in early 2020, chief financial officer Brian Olsavsky told reporters on a conference call.

Amazon roughly doubled the number of items it could deliver just a day after purchase, moving forward on a long-term commitment, according to press releases. Its July Prime Day marketing event was the largest ever in terms of unit sales.

“It looks like Amazon is finally ready to move on after a rocky few quarters,” said Insider Intelligence analyst Andrew Lipsman.

PURCHASING MODELS

Asked about Walmart and changes in consumer buying habits, CFO Olsavsky said, “We didn’t notice a pullback in June.”

Still, sales growth slowed year-over-year in some of the retailer’s business segments. In North America, the company’s largest market, net sales climbed 10% in the just-ended second quarter, compared with a 22% gain in the same period a year ago. Its international unit experienced an outright decline of 12%.

A changing of the guard announced the departure of Consumer CEO Dave Clark and general affairs director Jay Carney, as well as two of the company’s most senior black executives. A period of record profits gave way in the first quarter of 2022 to Amazon’s first quarterly loss in seven years.

Ultimately, Amazon lost $2 billion in the second quarter, including a $3.9 billion pretax valuation loss from its investment in Rivian Automotive Inc. But the company beat expectations by posting a operating profit of $3.3 billion, entirely thanks to its profitable cloud computing. division. Analysts had estimated an average of $1.8 billion, according to research firm FactSet.

Incremental business costs from inflation, productivity and other items were $4 billion, in line with Amazon’s expectations and about $2 billion lower than when they started. of the year, said Olsavsky.

After racing to meet demand at the height of the pandemic, doubling its distribution network in just two years, the company began to slow warehouse openings to control costs. It suspended a major expansion of office space in Bellevue, Washington, and it did not fill vacancies at some facilities, reducing its full-time and part-time workforce from the March quarter.

He also raised some prices. After increasing US fees for its Prime fast-delivery club, Olsavsky said subscription retention was as good or better than the company expected.

Cloud computing division Amazon Web Services also beat estimates. The unit posted revenue of $19.7 billion, ahead of the more than $19.5 billion that analysts had estimated Amazon would collect for the second quarter.

Asked about a potential downturn, Olsavsky said on a call with an analyst that a downturn in 2008 led to companies choosing to use Amazon’s cloud services over building their own data centers, giving a boost to AWS. Rival Microsoft Corp also said earlier this week that its fiscal year revenue would grow based on demand for its cloud services.

Adjusting for items, Amazon reported earnings per share of 18 cents, beating consensus for earnings per share of 13 cents, according to IBES data from Refinitiv.

A trio of Alphabet executives sounded cautious on a call with investment analysts, using “uncertain” or “uncertainty” at least 13 times to describe the economy. YouTube ad sales grew at their slowest pace since disclosures began in 2018.