Amazon pandemic bump fades as vaccinated shoppers leave home

Shares slump 8 percent in biggest drop since May 2020

Amazon emerged as the essential store for homebound shoppers during the coronavirus pandemic, propelling its sales and profits to new highs. Now, the rush online is slowing down as vaccinated consumers peel away from computers and smartphones and revert to old habits like travelling and dining out.

The world’s biggest e-commerce retailer on Thursday reported sales and gave a forecast that fell short of expectations. The shares declined 8 per cent at 9.34am EST, for the biggest drop since May 1, 2020, the first time Amazon missed quarterly sales estimates since 2018.

The Seattle-based company invested billions to operate through the pandemic while minimising the spread of Covid-19 through its sites and hiring hundreds of thousands of workers to meet crushing demand.

The company's new chief executive, Andy Jassy, who took the helm from founder Jeff Bezos on July 5, has to convince investors that Amazon continues to be a good long-term bet even though revenue growth is slowing and the company faces heightened scrutiny from regulators in the US and Europe, its biggest markets.

“They just don’t have the tailwinds they had last year,” said Brian Yarbrough, an analyst at Edward D Jones & Co. “It just becomes the law of large numbers. There’s just no way it can be sustained.”

Investors overlooked better-than-predicted profits and a strong performance in the quarter from the company’s advertising business and Amazon Web Services cloud unit. Instead they focused on slowing growth for the company’s core e-commerce business, which the company's chief financial officer, Brian Olsavsky, said would continue through the year.

Higher expenses also will linger as Amazon keeps adding capacity and hiring workers to meet demand that has jumped in the past two years, he said. Some sites are handling double the package volume they did two years ago, he added, and Amazon must compete in the labour market for employees as more and more businesses reopen, which will add to costs.

“I would count on wage pressure for the immediate future,” Mr Olsavsky told analysts on a conference call, discussing factors weighing on Amazon’s profitability. Second-quarter total operating expenses rose 27 per cent to $105.4 billion, the company said on Thursday in a statement.

Amazon is working to have more of its employees vaccinated and hopes the Delta variant of the virus can be controlled even if that means “people are getting out more and doing other things besides shopping,” Mr Olsavsky said. “It’s a good phenomenon.”

Revenue will be $106bn to $112bn in the period ending in September, Amazon said, while operating profit will be $2.5bn to $6bn. Analysts, on average, projected $8.11bn in profit on sales of $118.7bn, data compiled by Bloomberg showed.

Second-quarter sales increased 27 per cent to $113.1bn, missing estimates of $115bn. Profit was $15.12 a share in the period ended June 30, compared with the average estimate of $12.28.

Mr Bezos remains executive chairman and the exact nature of his new role is a work in progress.

He has said he wants to focus his attention on new initiatives, which suggests Mr Jassy will oversee the day-to-day of Amazon’s business. Mr Jassy previously ran the cloud unit.

Amazon Web Services revenue jumped 37 per cent in the quarter to $14.8bn — the biggest year-over-year sales jump in two years. The company’s “other” revenue category, primarily advertising sales, gained 87 per cent to $7.92bn, with both units topping analysts’ estimates.

Amazon’s gains during the pandemic came from adding more Prime members, who pay monthly or annual fees in exchange for shipping discounts and other perks. Amazon had 153 million Prime members in the US at the end of June, up 25 per cent from a year earlier, Consumer Intelligence Research Partners reported.

Prime members shop more frequently on Amazon and spend about twice as much on the site as non-Prime members.

Despite big e-commerce investments by competitors that include Walmart, Target and Best Buy, Amazon remains the unrivalled e-commerce leader in the US, its biggest market.

US shoppers will spend $367bn on Amazon this year, up 15.3 per cent from 2020, eMarketer Inc said. Amazon’s 40.4 per cent share of all online spending in the US is bigger than its next nine competitors combined.

The company continues to expand its workforce. It had almost 1.34 million employees worldwide as of June 30, up 52 per cent from a year earlier. Mr Olsavsky said Amazon is recruiting workers in a tight labour market by offering competitive wages and benefits.

Updated: July 30th 2021, 2:56 PM