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Amazon predicts sales growth slowdown for holidays, crushing shares

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Amazon.com Inc on Thursday forecast a slowdown in sales growth for the holiday season, disappointing Wall Street and warning that inflation-wary consumers and businesses had less money to spend.

Shares fell 14% in after-hours trade.

For months, the world’s biggest online retailer has fought against troubling macroeconomic tides.

It hosted not one, but two cornerstone sales events in a year: Prime Day in July, and the Prime Early Access Sale this month.

For the summer event, it indeed sold more items than ever before to its loyalty shoppers, and, meanwhile, the company sought revenue from higher Prime subscription fees and a surcharge on some merchants.

Net sales were $127.1 billion in the third quarter ended September 30, still a little lower than the $127.5 billion analysts expected, according to IBES data from Refinitiv.

But the economic outlook has not brightened.

In a call with reporters, Amazon Chief Financial Officer Brian Olsavsky said the company was bracing for slower economic growth.

“We are seeing signs all around that, again, people’s budgets are tight, inflation is still high, energy costs are an additional layer on top of that caused by other issues,” he said.

“We are preparing for what could be a slower growth period, like most companies.”

While Amazon would continue to fund earlier-stage businesses like its lucrative cloud-computing and advertising divisions, it would question costs elsewhere and proceed carefully on hiring, he said.

“It’s possible that retail sales will decline year-over-year. I don’t actually believe that will happen, but the market definitely doesn’t like it,” said Wedbush Securities analyst Michael Pachter.

Amazon forecast net sales of between $140 billion and $148 billion, or growth as little as 2% from a year earlier. Analysts were expecting $155.2 billion.

Prior holiday quarter sales growth was 9% in 2021 and 38% in 2020.

CLOUD MISSES

Across the retail sector, US online sales are expected to rise at their slowest pace in years this holiday season.

Results in the tech industry were just as poor this week for cloud-computing rivals Microsoft Corp and Alphabet Inc’s Google, adding to recession fears. US consumer confidence did a U-turn in October.

“Big tech companies are not impervious to slowdowns in the economy, particularly if they are consumer driven,” said Rick Meckler, partner at Cherry Lane Investments in New Jersey.

Amazon Web Services (AWS), the company’s lucrative data-storage and computing division serving enterprises, only helped so much. While it provided much-needed operating income, just like rival Microsoft’s Azure cloud, Amazon fell short of estimates.

It increased third-quarter cloud sales 27.5% to $20.5 billion, while analysts had expected more than $21.1 billion.

Paolo Pescatore, analyst at PP Foresight, said, “With so much unpredictability there is huge concern, which is impacting confidence among enterprises to invest.

In turn, it is hitting the broader cloud sector and companies such as AWS and Azure.”

Facing high inflation and receding consumer demand, new Chief Executive Officer Andy Jassy has raced to control costs across Amazon’s vast array of businesses.

Amazon has slowed warehouse openings and refrained from filling some open positions.

It announced it would shut down its virtual healthcare service by year-end, and it is scaling back a long-touted effort to deliver goods via small autonomous sidewalk cars.

Still, worldwide shipping costs grew 10% in the third quarter to $19.9 billion. Amazon’s net income also decreased to $2.9 billion in the third quarter, while beating analysts’ average estimate of a $2.2 billion profit, according to IBES data from Refinitiv.

In a statement, Jassy said, “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

 

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