Earnings report shows miss on sales, forecast for third quarter suggests slowdown in e-commerce activity is expected to continue — ‘There have been some noticeable intra-quarter changes in our revenue run rate,’ CFO says
Amazon.com Inc. sales growth slowed down in the second quarter of the year as brick-and-mortar stores reopened across the U.S., sending shares south in after-hours trading Thursday.
Amazon AMZN, -7.05% reported second-quarter earnings of $7.78 billion, or $15.12 a share, up from $10.30 a share a year ago, when shelter-in-place requirements from the COVID-19 pandemic began and led to big uptakes in e-commerce. Sales grew to $113.1 billion from $88.9 billion a year ago, missing expectations as sales that had been growing more than 40% in recent quarters fell to growth of 27%.
Analysts on average expected earnings of $12.28 a share on sales of $115.4 billion, according to FactSet. Amazon shares declined more than 7% in after-hours trading, and other e-commerce stocks joined in: Etsy Inc. ETSY, -7.32% declined more than 2%, Shopify Inc. SHOP, -1.31% fell more than 1% and eBay Inc. EBAY, -5.67% decreased about 0.9%.
Sales in Amazon’s online stores grew just 13% in the quarter to $53.16 billion from $45.9 billion a year ago in the same quarter, while analysts on average expected $57.35 billion, according to FactSet. Amazon’s online sales had grown by at least 37% in each of the prior four quarters. Amazon’s physical stores, which include Whole Foods Market grocery stores, saw revenue grow 10% to $4.2 billion from $3.77 billion a year ago.
Amazon predicted that the slowdown in sales growth would continue, with a forecast for third-quarter sales of $106 billion to $112 billion and operating income of $2.5 billion to $6 billion. Analysts on average had been predicting third-quarter operating income of $8.24 billion on net sales of $119.31 billion, according to FactSet.
“There have been some noticeable intra-quarter changes in our revenue run rate,” Chief Financial Officer Brian Olsavsky said in a conference call Thursday afternoon.
“Since May 15 — excluding Prime Day — our year-over-year growth rate has dropped into the mid-teens,” he later added. “Our Q3 revenue guidance range of 10% to 16% growth reflects an expected continuation of this trend … While I’m not giving forward guidance beyond Q3 of this year, we do expect this pattern of difficult year-over-year revenue comps to continue for the next few quarters.”
The full results did include Amazon’s annual Prime Day sale, and analysts had debated whether the sale had prompted 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 areas of the U.S. reopened brick-and-mortar stores after vaccinations led to a slowdown in COVID-19 transmission and stimulus payments dried up.
“We believe two factors have been weighing down Amazon shares: soft Prime Day results, and a highly debated outlook for 2H Retail/Commerce after unemployment benefits lapse,” MKM Partners managing director Rohit Kalkarni wrote ahead of the report, while confirming his shop’s Amazon buy rating, $4,075 price target and designation as top pick among megacap stocks for the second half. “However, on the strength of Amazon advertising, subscriptions (Prime), and cloud computing (AWS), we expect Amazon to report upside to Street and its guidance in 2Q.”
Amazon’s other businesses continued to show strong growth rates, as Kulkarni predicted. Amazon’s “other” revenue, which is largely online-advertising sales, grew 83% to $7.92 billion from $4.22 billion a year ago, following a trend of booming online ad sales shown in reports from Google parent Alphabet Inc. GOOGL, -0.80% GOOG, -1.00% and social-media giant Facebook Inc. FB, -0.10% earlier in the week.
Amazon Web Services, or AWS, reported sales of $14.81 billion, up 37% from $10.81 billion a year ago, while analysts were expecting $14.28 billion. The cloud-computing arm of Amazon continues to be the biggest driver of profit, reporting operating income of $4.19 billion from $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 AWS acceleration that may be a catalyst, in and of itself, for the stock,” MKM Partners technology sector specialist Dan Forman wrote ahead of the report.
Amazon’s new chief executive, Andy Jassy, did not join Thursday’s conference call after his first earnings report since taking over the top spot from founder Jeff Bezos, who transitioned to chairman of the company. Bezos stopped joining the quarterly confabs with analysts years ago, leaving the duty to Amazon’s chief financial officer.
“Over the past 18 months, our consumer business has been called on to deliver an unprecedented number of items, including PPE, food and other products that helped communities around the world cope with the difficult circumstances 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 growth reaccelerate as more companies bring forward plans to transform their businesses and move to the cloud.”
Despite strong gains during the COVID-19 pandemic, Amazon stock has lagged behind the S&P 500 index’s SPX, -0.44% growth, gaining 10.1% so far this year and 18.3% in the past 12 months, as the S&P 500 increased 17.2% and 35.1% in those periods, respectively. Some analysts expected Thursday’s earnings report to potentially kick in fresh gains, though options traders appeared to disagree.
“We have been suggesting for some time now that as Amazon hurdles the tougher COVID compares along with the 2019 launch of 1-Day shipping, and as we get increased clarity from the company on y/y spending compares post-COVID, that the stock could potentially break out and make new highs,” MKM’s Forman wrote Thursday morning.