Amazon: Why The “Always Winner” Is Vulnerable After All

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“One day Amazon (AMZN) will go under. I’m telling you that right now.” You may still remember this quote from 2018. It comes from none other than Amazon founder Jeff Bezos himself. At the time, the billionaire had urged his workforce and shareholders that the group was not “too big to fail”. Even Amazon could disappear into irrelevance at some point, Bezos said.

Now, some four years after Bezos’s doomsday fantasy, the corporation is indeed starting to show cracks. Sure, Amazon is still the most important e-commerce player in the world and also a leader in the cloud. Nevertheless, the latest quarterly figures show that the tech giant now has to bake smaller rolls.

Weak Q1 Figures at Amazon

Perhaps you have already read it in the media. Amazon was able to achieve sales of “only” $116.4 billion in the first quarter of 2022. That is, of course, a gigantic figure. Compared to the same quarter last year, however, revenues rose by just 7%. This is a bitter pill to swallow for a company that is otherwise so accustomed to success, and the weakest growth in around two decades.

But that is by no means all: Amazon achieved an operating profit of only $3.7 billion in Q1. This compares to $8.9 billion in the same period last year.

Inflation Cools Online Commerce

By the way, the e-commerce giant justifies the weak figures primarily with inflation effects. The pandemic and the Ukraine war, for example, had ensured that consumers had significantly reduced their consumption. These were unusual challenges, Amazon CEO Andy Jassy, who has been in office since 2021, had to concede.

In fact, in response to rising energy prices in the U.S., Amazon had already significantly increased the cost of its “Prime” fast delivery service. In addition, an inflation surcharge is to be introduced for those retailers who use Amazon’s logistics sites. 

All of this means that end customers on Amazon’s Marketplace will have to dig deeper into their pockets. In times of horrendous living costs, this is an additional burden that many consumers apparently don’t want to put up with.

High Personnel Costs

In addition, Amazon has invested heavily in expanding its workforce in the last two years. The company had just under 1.3 million employees under contract at the beginning of 2020. It already had 1.62 million at the beginning of 2022. 

This goes hand in hand with enormous additional costs for the workforce, whose potential has now not been able to unfold due to weaker demand in Q1.

Net Loss Due To Rivian Flap

Particularly bitter: The bottom line was that Amazon did not even make a profit in the first three months of the year. For the first time in seven years, the tech giant posted a net loss of $3.8 billion. By comparison, in Q1 2021, the company had still earned $8.1 billion on the bottom line.

In addition to the difficulties in the operating business, the net loss was mainly due to an impairment loss on the investment in electric carmaker Rivian. This special item alone accounted for a loss of $7.6 billion. The U.S. company Rivian wants to sell a total of 100,000 all-electric vans to Amazon by the end of the 2020s to improve its climate footprint.

Amazon holds more than 17% of Rivian shares and is therefore dependent on its share price. In any case, Rivian’s share price fell sharply in the first quarter, losing about half of its value after the stock shot up shortly after the IPO in November 2021. Apparently, there are growing concerns in the capital market as to whether the young, highly loss-making e-car maker can deliver on its growth promise.

Amazon Q2 Forecast Disappoints

As if all this wasn’t bad enough, Amazon was also disappointed with its business forecast. For the current quarter, the group expects sales of between $116 and $121 billion. In the worst case scenario, that would be revenue stagnation compared to Q1. Something that seemed unthinkable at Amazon until now.

There was also great uncertainty in the profit forecast. Amazon expects an operating result between minus one and plus three billion dollars for Q2. A pretty wide range, then – and a high probability of being in the red.

My Conclusion For You

The tech giant, often dubbed the “always-winner” in recent years, is teetering. The latest quarterly figures show more than clearly that the group is vulnerable and far from being above things. No wonder, then, that Amazon shares reacted to the publication of the balance sheet data (Thursday evening) with a whopping minus. Between April 29 and May 2, the paper crashed by 16%.

It now remains to be seen whether Amazon can get a grip on inflationary pressures in the remainder of the year. For example, the group plans to use more robots in its logistics centers in the future to reduce personnel costs.

Another bright spot is the cloud division AWS. Its revenue shot up 37% in Q1 to $18.4 billion – and its operating profit improved by 43%. Unlike Alphabet’s cloud business, for example, AWS has long been highly profitable and is probably the company’s most important growth pillar. Investors can continue to expect very strong potential here.

All in all, however, Amazon stock is currently a risky bet in my opinion, and you can easily burn your fingers on it. This is primarily due to the economic impact of the Ukraine war, the extent of which can only be speculated at present.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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