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Amazon’s shares dropped as much as 6% in extended trading after the company reported second-quarter revenue that fell short of Wall Street’s expectations and issued a disappointing revenue forecast for the current quarter.
Q2 Performance Highlights:
- Earnings: $1.26 per share, surpassing the $1.03 per share expected by analysts polled by LSEG.
- Revenue: $147.98 billion, slightly below the expected $148.56 billion.
Key Business Segment Performance:
- Amazon Web Services (AWS): Generated $26.3 billion in revenue, beating the $26 billion expected by StreetAccount. However, AWS’s growth rate lagged behind competitors Microsoft and Google, which reported 29% growth in their respective cloud businesses.
- Advertising: Revenue rose 20% to $12.77 billion, narrowly missing the $13 billion forecast by StreetAccount. The advertising unit continues to be a significant profit generator for Amazon, competing with industry giants Meta and Alphabet.
Q3 Forecast: Amazon projects third-quarter revenue to range from $154 billion to $158.5 billion, indicating an 8% to 11% year-over-year growth. The midpoint of this range, $156.25 billion, is below the average analyst estimate of $158.24 billion. The company expects operating income for the quarter to be between $11.5 billion and $15 billion, compared to $11.2 billion in the same period last year. Analysts had forecast operating income to reach $15.3 billion.
Challenges and Market Dynamics: Amazon continues to face sluggish growth in its core retail business, with heightened competition from discount platforms like Temu and Shein. These sites, which offer inexpensive products from Chinese merchants, are attracting U.S. consumers. The company’s online store sales grew by only 5% year-over-year, while revenue from third-party seller services, including commissions and fulfillment fees, increased by 12%.
CFO Brian Olsavsky attributed the revenue shortfall to consumers opting for cheaper products, resulting in a lower average selling price (ASP). He noted, “What we’re seeing is really around ASP and lower ASP in products selected by customers. They are continuing to be cautious in their spending and trading down to lower ASP products.”
In response to the competitive pressure, Amazon is planning to launch a discount store featuring mostly unbranded items priced below $20, including apparel and home goods, as revealed at an event with Chinese sellers in June.
Impact of External Events: Olsavsky also highlighted external factors affecting consumer behavior, including the 2024 Summer Olympics in Paris and the recent assassination attempt on former President Donald Trump. He noted, “No matter what you’re selling or providing to a customer base, customers only have so much attention. When high-profile things happen or the assassination attempt a couple of weeks ago, you see that people shift their attention around news.”
Financial Results and Strategic Considerations: Despite the revenue miss, Amazon’s net income doubled from a year earlier, reaching $13.5 billion, or $1.26 per share, up from $6.75 billion, or 65 cents per share. This increase reflects the company’s extensive cost-cutting measures.
Amazon’s cautious guidance and revenue miss, coupled with external distractions and competitive pressures, underscore the challenges the company faces as it navigates a complex market landscape.