Amazon Earnings Suffer as Growth Slows, Costs Rise
E-commerce and cloud-computing company tries to navigate supply-chain and staffing challenges to maintain growth
Amazon. AMZN 1.59% com Inc. posted lower-than-expected third-quarter sales and signaled that a tight labor market and supply-chain disruptions would weigh on earnings.
The Seattle-based tech company has been navigating substantial shifts in the economy in recent months. Online sales have surged since the start of the Covid-19 pandemic, boosting Amazon’s profit, but sales growth has slowed while labor and supply-chain shortages make it harder to meet demand. The company says it has spent heavily to build out its fulfillment network.
In its first quarterly earnings report covering a period primarily under new Chief Executive Andy Jassy, who on July 5 succeeded founder Jeff Bezos in the top job at Amazon, the online retailing giant posted sales of $110.8 billion and generated a profit of $3.2 billion, down from the $6.3 billion the company made during the same period a year earlier. Wall Street expected $111.6 billion in quarterly revenue and profit of $4.6 billion.
In the current quarter, “we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” Mr. Jassy said in a statement.
For the fourth quarter, the company projects sales between $130 billion and $140 billion, compared with a Wall Street expectation of $142.2 billion.
Amazon shares, which closed up 1.59% in Thursday trading, fell more than 3% after the bell with the results.
Amazon’s cloud-computing business, which offers server capacity and software tools and generates a significant portion of the company’s operating profit, has continued to grow at a fast clip. Amazon has also seen strong demand for its digital advertising business, which has increasingly competed with Google and Facebook’s powerful ad platforms. Sales for the cloud unit continued to climb sharply, totaling $16.1 billion in the third quarter, up about 38% from a year earlier. Amazon’s unit that primarily includes ad sales grew 50%.
Amazon’s technology peers showed robust results this week. Microsoft Corp. , the No. 2 in the cloud behind Amazon, on Tuesday reported a 48% jump in quarterly profit to $20.5 billion. Alphabet Inc.’s Google nearly doubled its profit in its third quarter, as smaller businesses poured money into ads.
During Amazon’s previous earnings report in July, Chief Financial Officer Brian Olsavsky stressed that the company’s coming financial performances would run into tough comparisons after the previous year’s pandemic-fueled success. In addition, Amazon held its annual Prime Day sales extravaganza during its second quarter, taking away the revenue boost from the event that has typically been held during its third quarter.
The nation’s second-largest private employer has said it plans to hire about 275,000 permanent and seasonal employees in the face of a tight labor market, partly to deal with the anticipated online holiday shopping surge. To help attract and retain staff, Amazon raised wages, now averaging a little over $18 an hour, and has handed out bonuses of $3,000 in some cases. The online retailer also recently introduced a plan to pay for the tuition of its workers.
Mr. Jassy also said the company has doubled the size of its fulfillment network since the start of the pandemic.
“Up and down the supply chain, costs are increasing, and Amazon isn’t immune,” said Andrew Lipsman, principal analyst at market research firm Insider Intelligence. “But they are reaping some of the benefits now in the investments they made in logistics a couple of years ago.”
To help make good on orders, Amazon this week said it would use more ports and has doubled container processing capacity. The company has also expanded the fleet of planes it uses to ferry packages and taken other steps to meet demand.
Amazon heads into its last quarter also facing increased tension with its workforce.
The National Labor Relations Board this week said a group of Amazon employees in New York had shown enough worker interest for a potential union election. The fledgling group, which calls itself Amazon Labor Union, has campaigned across four Staten Island company facilities that organizers say employ roughly 7,000 workers. Amazon is expected to contest the group’s proposed bargaining unit.
The case in New York represents the second formal U.S.-based union push at Amazon in the past year. Workers at an Amazon facility in Bessemer, Ala., earlier this year voted against joining the Retail, Wholesale and Department Store Union, or RWDSU.
No Amazon employee in the U.S. is represented by a union. Amazon, which has long opposed unions, has maintained that it already provides the benefits unions ask for and prefers to negotiate with workers directly.