Was Amazon’s $4B Loss an ‘Own-Goal’?

So far, 2022 has hit Amazon where it hurts — in the wallet. During the first three months of the year, the e-tailer suffered a $3.8 billion net loss, shocking analysts and Wall Street. It was the company’s first quarterly loss in seven years and, it turns out, Amazon itself may be partly responsible.

After reporting $116.4 billion in revenue, which limped over estimates of $116.3 billion and even showed a little growth, at 7 percent over the same time last year, analysts were left stunned by the financial stumble.

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Amazon blamed the tanking value of its major investment in Rivian Automotive, a once-buzzworthy EV (electric vehicle) company whose initial public offering in November was hailed as the most successful IPO in several years. Rivian basked in the glow of its key investor and, thanks to a partnership deal, could boast that it was supplying EV delivery vans to one of the world’s top e-commerce platforms.

But in recent months, its stock has been tanking, leaving investors agape as three-quarters of Rivian’s share value evaporated. For Amazon, which soaked a total of $1.8 billion into the start-up, the freefall resulted in a whopping $7.6 billion loss.

The reasons for the downturn range from self-inflicted — like a big price hike that triggered backlash from preorder customers — to other complications, including component shortages. But Amazon’s own actions didn’t help.

It’s supposed to receive 100,000 Rivian-made electric delivery vehicles, but confusion reigns, as it’s not clear when they’re coming and how many have been produced so far. What investors do know, however, is that Amazon isn’t relying on that: Early this year, revelations surfaced that the company has been striking e-car deals with Stellantis, Daimler and others, shaking confidence in the start-up.

It makes for a fascinating twist. Rivian’s marquee investor wound up undermining the business. Now its falling share value — fueled by that and other woes — came back to bite Amazon.

Not that it’s alone. Ford Motor Company invested in the EV company as well, resulting in $5.4 billion in loss. But optimism over its strategic plans, and the fact that it beat revenue and earnings estimates, gave Ford some resilience.

That’s not the case for Amazon right now.

The last quarter looks particularly bad compared to last year. In the first quarter of 2021, pandemic-fueled online shopping and gains across other business units drove 44 percent year-over-year growth and $108.5 billion in revenue, with profits north of $8 billion. First-quarter 2022 projections essentially cut that in half, laying out expectations of $4.4 billion in profit that were ultimately unfulfilled.

According to Amazon, the second quarter doesn’t look much better. It forecasts slowing year-over-year growth between 3 and 7 percent, pegging revenue between $116 billion and $121 billion. Analysts thought it would come to $125.5 billion.

Shares fell 10 percent in after-hours trading, and as of Friday, they still haven’t recovered.

At least it has the Prime Day annual sales extravaganza to look forward to in July.

According to chief executive officer Andy Jassy: “The pandemic and subsequent war in Ukraine have brought unusual growth and challenges” — which paints Amazon as subject to the same broader challenges that have been plaguing the retail and technology sectors across the board. While that’s true, it’s clearly not the full picture.

Still, he tried to focus on the bright spots during the quarter, like Amazon Web Services, which has become a rather foundational part of the company. The cloud division outperformed Amazon as a whole, with $18.44 billion in sales blowing past the $18.27 billion expected and operating income soaring 57 percent to $6.5 billion.

Jassy also painted a positive portrait of its consumer business, with high growth over the past two years prompting the company to double its fulfillment network. With that behind it, now it’s focusing on efficiencies like delivery speed. Performance has been improving, he said, even “approaching levels not seen since the months immediately preceding the pandemic in early 2020.”

It’s not clear if Rivian’s electric delivery vehicles are supposed to be part of that plan, and if so, when. The new Buy With Prime program could also be a pressure test on Amazon’s infrastructure, as offering fast shipping and other Prime perks to outside e-commerce sites looks like a major expansion.

Notably, in only the second time Amazon broke out figures for its ad business, it apparently eked out a small victory — which is conspicuous in a tough quarter for tech, in general. Ad sales of $7.88 billion may not have met expectations of $8.17 billion, but they still represent a 23 percent uptick over last year. That’s good enough to edge out Google (22 percent) and trounce Facebook (6.1 percent).

Of course, as a retailer, Amazon faces challenges that go beyond tech sector concerns, like warehouse labor issues. Just weeks ago, workers in Staten Island, New York, voted in favor of forming a labor union, setting up a historic first for the company — the arrival of its first official unionized workplace in the U.S. Now other warehouses are trying to unionize as well.

Amazon is fighting it.

Harry Byrne

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