Amazon: Revenue Forecast Below Wall Street Targets

Amazon.com shares fell nearly 8% after reporting slower second-quarter online sales growth and wary buyers exploring cheaper options

The after-hours stock decline occurred even though the company’s cloud computing sales and second-quarter profit exceeded analyst expectations. The company’s current-quarter sales forecast fell below Wall Street estimates, disappointing investors even though Amazon shares have gained over 20% this year as of the session close on Thursday.

On a conference call with reporters, Brian Olsavsky, Amazon’s chief financial officer, stated that consumers are “continuing to be cautious with their spending trading down.”

He also stated, “They are in search of bargains,” and observed that reduced-price products were being sold rapidly.

Customers were negotiating down on price when they could, according to CEO Andy Jassy, during a call with analysts. Temu and Shein, budget retailers that sell a diverse selection of products at discounted prices directly from China, have increased their competition with Amazon’s online retail business.

In recent days, Mondelez, PepsiCo, and Kraft, the makers of Oreos, have all made similar comments that have underscored American consumers’ obstacles.

In the second quarter, Amazon’s online store sales increased by 5% to $55.4 billion, from the 7% growth experienced in the first quarter.

One analyst stated that a slowdown in retail sales growth drove the post-market share sell-off.

“They’re showing continued momentum on cloud in terms of re-acceleration, and so that’s certainly where I think investors will be more positive, but the retail aspect is definitely what’s weighing on the stock right now,” said Charles Rogers, an analyst at M Science.

“We are making progress in a variety of areas, but the re-acceleration of AWS growth is perhaps the most significant,” Jassy stated in a press release announcing the results.

One of Microsoft’s cloud businesses is Amazon Web Services (AWS).

Olsavsky reported that making predictions for the third quarter was challenging because consumers were distracted by events such as the presidential election and the Olympics in Paris. According to him, Prime Day, Amazon’s two-day discount sales event in July, was its “most significant ever,” but he did not provide any specifics.

On Wednesday, Kraft announced that it had been compelled to introduce Capri Sun multi-serve bottles, expand its Oscar Mayer product line at dollar stores, and provide additional entry-level price points in response to consumers’ increasing demand for value.

PLAYING CATCHUP ON AI

Like other major technology companies, Amazon is increasing its capital expenditures to support the development and infrastructure of artificial intelligence. Olsavsky stated that the expenses during the first six months of this year were approximately $30.5 billion, which implies that the second quarter will be roughly $16.5 billion.

Amazon, headquartered in Seattle, is currently catching up with its competitors, Microsoft and Google, in developing its own “large language models.” These models are capable of responding to complex inquiries or prompts in a short amount of time. Microsoft and Google are partners with OpenAI.

It has implemented a chatbot named Rufus to assist consumers in purchasing decisions for particular purposes.

Alphabet, the parent company of Google and Microsoft, cautioned investors last month that expenditures would remain elevated throughout the year to support the development of costly AI software and services. Investors interpreted this as a warning that the anticipated payout from the fashionable technology may be delayed.

Amazon Web Services posted a 19% increase in revenue to $26.3 billion for the second quarter, surpassing market expectations of $25.95 billion.

LSEG data indicates that the company anticipates revenue in the third quarter of $154.0 billion to $158.5 billion, which is lower than analysts’ average estimate of $158.24 billion.

Amazon’s advertising sales, which are closely monitored, also failed to meet expectations as it intensified its competition with Meta Platforms and Google. According to data from LSEG, the quarter’s sales of $12.8 billion were lower than the average estimate of $13 billion.

The company initiated the placement of advertisements in its Prime Video service earlier this year.
Despite this, Olsavsky expressed his satisfaction with the advertising outcomes. A 20% increase in those transactions was observed during the quarter.