Amazon Shares Drop 7% as Pandemic Selling Wave Appears to End

Amazon.com Inc.’s Revenue Growth slowed in the second quarter of the year as brick-and-mortar stores reopened in the US, pushing shares south in after-hours trading on Thursday.

Amazon AMZN
reported second-quarter earnings of $7.78 billion, or $15.12 per share, up from $10.30 per share a year ago, as on-site shelter requirements for the COVID-19 pandemic began and led to a large rise in e-commerce. Revenue grew from $88.9 billion a year ago to $113.1 billion, falling short of expectations as revenue, which had risen more than 40% in recent quarters, fell to growth of 27%.

Analysts expected earnings of $12.28 per share on average on revenue of $115.4 billion, according to FactSet. Amazon stocks fell more than 7% in after-hours trading, and other e-commerce stocks joined in: Etsy Inc. ETSY
fell more than 2%, Shopify Inc. SHOP
fell more than 1% and eBay Inc. EBAY
decreased by about 0.9%.

Sales at Amazon’s online stores grew just 13% in the quarter to $53.16 billion, compared to $45.9 billion a year ago in the same quarter, while analysts expected an average of $57.35 billion, according to FactSet. Amazon’s online sales had grown at least 37% in each of the previous four quarters. Amazon’s brick and mortar stores, including Whole Foods Market supermarket chains, saw sales grow 10% to $4.2 billion, compared to $3.77 billion a year ago.

Amazon predicted the slowdown in revenue growth would continue, forecasting third-quarter revenue of $106 billion to $112 billion and operating income of $2.5 billion to $6 billion. Analysts had forecast third-quarter operating income of $8.24 billion on average on net sales of $119.31 billion, according to FactSet.

“There have been some noticeable changes in our revenue run within the quarter,” Chief Financial Officer Brian Olsavsky said during a conference call Thursday afternoon.

“Since May 15 – excluding Prime Day – our annualized growth rate has fallen to the mid-teens,” he added later. “Our revenue guidance range for the third quarter of 10% to 16% growth reflects an expected continuation of this trend…While I am not providing an outlook beyond the third quarter of this year, we expect this pattern of difficult year-over-year revenue comparisons to continue in the coming years.” quarters continue.”

The full results included Amazon’s annual Prime Day sale, and analysts had debated whether the sale caused as much activity on the company’s website as in previous years. There were also concerns about a slowdown in overall e-commerce activity as many parts of the US reopened brick and mortar stores after vaccinations slowed transmission of COVID-19 and stimulus payments dried up.

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“We believe that two factors have weighed on Amazon stock: soft Prime Day results and a highly contentious outlook for 2H Retail/Commerce after unemployment benefits expire,” wrote Rohit Kalkarni, director of MKM Partners ahead of the report. while confirming the Amazon of his shop. buy rating, price target of $4,075 and designation as top choice among megacap stocks for the second half. “However, based on Amazon advertising, subscriptions (Prime), and cloud computing (AWS), we expect Amazon to report positively to Street and his guidance in Q2.”

Amazon’s other companies continued to show strong growth rates, as Kulkarni predicted. Amazon’s “other” revenue, which is largely made up of online advertising sales, grew 83% to $7.92 billion from $4.22 billion a year ago, following a trend of strongly growing online ad sales, such as according to reports from Google’s parent company, Alphabet Inc. GOOGL
GOOG
and social media giant Facebook Inc. FB
earlier in the week.

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Amazon Web Services, or AWS, reported revenue of $14.81 billion, up 37% from $10.81 billion a year ago, while analysts expected $14.28 billion. Amazon’s cloud computing arm remains the top driver of earnings, with operating income of $4.19 billion, compared to $3.36 billion a year ago, accounting for nearly 60% of Amazon’s total operating income of $7.7 billion. .

“If Amazon shows another quarter of the AWS acceleration, that in itself could be a catalyst for the stock,” Dan Forman, MKM Partners’ technology sector specialist, wrote ahead of the report.

Amazon’s new CEO Andy Jassy did not participate in Thursday’s conference call after his first earnings report since taking over from founder Jeff Bezos, who transitioned to chairman of the company. Years ago, Bezos dropped out of quarterly analyst confabs and left the job to Amazon’s chief financial officer.

“Over the past 18 months, our consumer business has been called upon to provide an unprecedented number of items, including personal protective equipment, food and other products that have helped communities around the world cope with the difficult conditions of the pandemic. Jassy said in a statement. . “At the same time, AWS has helped so many businesses and governments maintain business continuity, and we’ve seen AWS’s growth accelerate again as more companies put forward plans to transform their businesses and move to the cloud.”

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Despite strong gains during the COVID-19 pandemic, Amazon stock has lagged the S&P 500 index’s SPX
growth, up 10.1% so far this year and 18.3% in the past 12 months, as the S&P 500 rose 17.2% and 35.1% respectively during those periods. Some analysts expected Thursday’s earnings report to potentially bring in new gains, although options traders disagreed.

“We’ve been suggesting for some time that as Amazon compares the more difficult COVID to the launch of 1-day shipping in 2019, and as we get more clarity from the company on y/y spending, post-COVID compares, the stock would may break out and reach new heights,” MKM’s Forman wrote Thursday morning.

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