Amazon signalled last night that its breakneck growth will slow over the coming months as people emerge from pandemic restrictions.
Net sales at the world’s largest ecommerce group rose by 27 per cent to $113.1 billion in the second quarter, boosting net income by 50 per cent to a record $7.8 billion, but its revenues fell short of the $115.42 billion that Wall Street had expected.
Earnings were boosted by further gains at its powerhouse cloud computing division and its fast-growing online advertising business.
However, investors took fright at a striking slowdown at its mainstay online retail business. Sales in North America, Amazon’s largest market, rose by 22 per cent between April and June, about half the rate of the previous four quarters. Amazon’s shares fell by more than 6 per cent in after-hours trading, sliding $229.92 to $3,370, as the results raised concerns that the company would take a hit as workers return to the office and as shops and restaurants reopen.
The looming slowdown comes at a time of upheaval in Amazon’s senior ranks. Andy Jassy, 53, its long-time cloud computing boss, took over as group chief executive this month, with Jeff Bezos, 57, its founder, staying on as executive chairman.
Amazon’s bumper earnings capped a blockbuster week for America’s largest technology companies, whose profits have soared over the past year as consumers and business have come to rely on their gadgets and online services for remote working, studying and entertainment. Apple, Microsoft, Alphabet, Facebook and Amazon made nearly $75 billion in profits in the second quarter.
Investors, though, are beginning to fret over whether the “Big Five” can sustain their recent rates of rampant expansion. Facebook shares closed down 4 per cent yesterday because of jitters over its prospects.
Amazon forecast third-quarter sales of between $106 billion and $112 billion, up by as much as 16 per cent from the year before, but lower than the previous quarter. It expects operating income of between $2.5 billion and $6 billion, compared with $6.2 billion in third quarter last year.
The company, founded in 1994 by Bezos, has grown from an online bookseller into the world’s largest ecommerce business. Its interests span groceries, internet advertising, streaming video and music, while its Amazon Web Services division is the world’s biggest cloud computing provider. At AWS, turnover rose by 37 per cent to $14.8 billion. Its growth has slowed recently amid stiffening competition from Microsoft and Google.
Amazon has become a growing force in digital advertising, though, where it competes with Google and Facebook. Its “other” sales segment, which includes its advertising business revenues, grew 83 per cent to $7.9 billion.
The group has hired aggressively during the pandemic to handle soaring demand and has invested billions of dollars to expand its logistics network. At the end of June, it employed 1.35 million people globally, including about 45,000 in the UK, compared with 798,000 at the start of last year.
The company is facing a jump in overheads in its domestic market amid a labour shortage. Amazon has raised wages for warehouse workers in the United States to an average $17 an hour wages, more than double the minimum wage.
Sales rocket but Amazon growth slows as pandemic restrictions reduce