Amazon Posts Second Straight Loss After Rivian Stake Writedown

Amazon has pleased investors after its second quarter revenues beat expectations, and it also offered an upbeat forecast for the third quarter.

Amazon shares rose more than 13 percent in extending trading on Thursday as a result, as Wall Street forgave the e-commerce giant posting its second straight quarterly loss in a row.

Amazon is contending with economic pressures, and earlier this week confirmed the cost of it’s Prime service for UK subscribers would rise in September from £7.99 to £8.99 per month (from £79 to 95 for a year’s subscription.

Second quarter results

Amazon has been contending with higher costs, as its pandemic-driven expansion left the firm with too many workers and too much warehouse capacity.

Matters are not been helped by rising fuel costs and inflationary pressures, all of which is damping consumer spending.

For the second quarter ending 30 June, Amazon posted a net loss of $2 billion, compared to a net profit of $7.8bn in the same year-ago quarter.

This loss included a pre-tax valuation loss of $3.9 billion from its investment in Rivian Automotive, after shares of the electric vehicle maker plunged 49 percent in the second quarter.

Revenues meanwhile grew to $121bn from $113bn a year earlier.

This was better than the $119.1 billion quarterly revenue expected, according to Refinitiv.

One of Amazon’s most important divisions saw improvements.

Amazon Web Services (AWS) posted revenues of $19.7 billion (compared to $19.56bn expected), up from $14.8bn a year earlier.

“Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” said Andy Jassy, Amazon CEO.

“We’re also seeing revenue accelerate as we continue to make Prime even better for members, both investing in faster shipping speeds, and adding unique benefits such as free delivery from Grubhub for a year, exclusive access to NFL Thursday Night Football games starting September 15, and releasing the highly anticipated series The Lord of the Rings: The Rings of Power on 2 September,” he said.

Looking forward, Amazon announced that later this year, customers in Lockeford, California, and College Station, Texas, will be among the first to receive Prime Air drone deliveries in the US.

Amazon shaved its headcount by 99,000 people to 1.52 million employees as of the end of the second quarter, after almost doubling in size during the pandemic.

But Chief Financial Officer Brian Olsavsky told reporters on a conference call that while Amazon will continue to hire engineers for units like Amazon Web Services and advertising, it will be cautious about hiring in other areas.

Stablising operations

Martin Garner, chief operating officer at CCS Insight noted that Amazon Web Services continues to be a star performer for the e-commerce giant.

“After the volatility from the start of the pandemic, and also from the end of the pandemic, Amazon described its operations as “stabilising” during the second quarter,” said Garner. “This is despite the more challenging macro-economic conditions, which have pushed up the company’s costs but are not (yet) hitting demand.”

“Amazon’s revenue growth rate at 7% in Q2 came in at the top end of its guidance, and needs to be seen in the light of very strong growth during the pandemic conditions in the last two years, “said Garner. “However, its profits were affected by a large re-valuation of its stake in Rivian, the electric vehicle manufacturer, as well as rising fuel costs, wage inflation and lower productivity in some newer areas.”

“AWS continued as the star performer within Amazon, up 33 percent in the quarter to $19.7 billion revenue, with a 36 percent operating margin,” Garner concluded. “Amazon said it expects AWS to be resilient if there is a recession, as it was in 2008. So, the company is continuing to invest in cloud at high speed, even though it is slowing the expansion of its operations in some other parts of the business.”