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Amazon (AMZN) Reports Loss in Q1, Misses Revenue Estimates

Amazon.com AMZN reported a first-quarter 2022 loss of $7.56 per share against earnings of $15.79 per share recorded in the year-ago quarter.

The company’s net loss, which totaled $3.8 billion, is inclusive of a pre-tax valuation loss of $7.6 billion in the non-operating expenses associated with its investment in Rivian Automotive.

The adjusted bottom-line figure stands at earnings of $4.24 per share, which missed the Zacks Consensus Estimate of $8.73 per share.

Net sales of $116.4 billion rose 7% year over year. Notably, the figure was within the management’s guidance of $112-$117 billion. However, it missed the Zacks Consensus Estimate of $117.02 billion.

We note that this reflects Amazon’s slowest-ever revenue growth.

Sluggishness in the company’s online stores affected its first-quarter results. Online store sales decreased 3% from the prior-year quarter to $51.1 billion in the reported quarter.

Uncertainties related to the coronavirus pandemic and the Russia-Ukraine war were headwinds. The ongoing inflationary pressure, elevated staffing costs and supply-chain disruptions were other negatives. Also, unfavorable foreign exchange fluctuations were overhangs for the company.

Coming to the segmental details, North America revenues (59% of sales) rose 8% from the year-ago quarter to $69.2 billion. International revenues (25% of sales) declined 6% year over year to $28.8 billion. Amazon Web Services (“AWS”) revenues (16% of sales) rose 37% year over year to $18.4 billion.

Year-over-year revenue growth was driven by solid momentum in AWS.

Strength in Prime was a positive. The company witnessed 11% growth in its subscription services sales, which were $8.4 billion in the reported quarter.

Strengthening relationships with third-party sellers remained a positive. In the reported quarter, sales generated by third-party seller services rose 7% on a year-over-year basis to $25.3 billion.

Additionally, robust advertising service contributed well. Sales from these services increased 23% to $7.9 billion.

Also, expanding smart device offerings continued to benefit the company’s first-quarter performance.

Amazon expects to incur huge expenses in fuel and transportation in the days ahead, which can be primarily attributed to the ongoing inflation.

Nevertheless, the company’s strong global presence, growing Prime momentum, strengthening AWS portfolio, improving Alexa skills, expanding smart devices portfolio, and growing efforts toward gaining strong traction among small and medium businesses are likely to drive its near-term financial performance.

Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. Price, Consensus and EPS Surprise
Amazon.com, Inc. Price, Consensus and EPS Surprise

Amazon.com, Inc. price-consensus-eps-surprise-chart | Amazon.com, Inc. Quote

Expanding AWS Clientele Aided Growth

AWS, which witnessed strong top-line growth, continued to gain customer momentum in the first quarter, courtesy of its highly reliable services portfolio, and the increasing number of data centers, availability zones and regions.

In the first quarter, AWS announced the completion of its first 16 AWS Local Zones in the United States. It also revealed plans to set up new Local Zones in 32 metropolitan areas in 26 countries worldwide.

On the heels of these factors, AWS experienced strong growth in its clientele with the addition of Commnet Broadband, Etisalat UAE, Amdocs, Tech Mahindra and THREAD.

Further, companies like MongoDB, T-Systems and Verizon extended their strategic relationship with AWS.

One of the existing clients, Bundesliga, the professional association football (soccer) league of Germany, debuted its two new AWS-powered match facts, Set Piece Threat and Skill.

Another client, National Hockey League, introduced its new ML-driven stat called Face-off Probability, backed by AWS.

Prime & Retail Efforts

The company continued to make strong efforts to bolster its Prime program and retail business.

Its increasing number of Fresh grocery stores, which currently stand at 46 worldwide, remained a major positive.

Growing momentum with the company’s Just Walk Out technology remained noteworthy. The company introduced the technology at two Whole Foods Market stores located in Washington,
DC, and Sherman Oaks, CA, for the first time.

The launch of a brand of everyday products, Amazon Aware, with all of its products certified as carbon-neutral, bolstered its carbon-neutrality efforts.

Coming to fashion retail, the company gained momentum in the United States and Canada on the back of the View in 3D feature. The introduction of Style Feed on the Amazon app in the United States and India was another positive.

In addition to these, expanding original content and the overall content portfolio on Prime Video continued to accelerate Prime engagement. The rising number of local originals across the world remained another major positive.

Notably, Prime Video streamed the new season of the unscripted franchise LOL in Canada, France, Germany and Italy. It also streamed new seasons of Luxe Listings in Australia, Mahaan in India, Bang Bang Baby in Italy and HOMESTAY in Japan.

It streamed new locally-produced series and movies in Argentina, Australia, Brazil, Canada, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Spain, and the U.K., thus gaining momentum internationally.

Apart from this, the strengthening momentum of Amazon Music contributed well.

Robust Smart Devices Portfolio

Amazon’s strengthening portfolio of Fire TV was beneficial.

Improving the skills and features of Alexa helped the company in winning deals in the reported quarter.

Further, expanding family of eero devices remained noteworthy.

Quarter in Detail

Product sales (48.5% of sales) decreased 1.8% year over year to $56.4 billion. Service sales (51.5% of sales) rose 17.6% from the year-ago quarter to $59.9 billion.

Operating expenses were $112.8 billion, up 13.2% from the year-ago quarter. As a percentage of revenues, the figure expanded 500 basis points (bps) on a year-over-year basis to 96.8%.

Cost of sales, fulfillment, technology and content, marketing, and general and administrative expenses increased 6.6%, 22.6%, 18.9%, 34% and 30.5% to $66.5 billion, $20.3 billion, $14.8 billion, $8.3 billion and $2.6 billion, respectively, on a year-over-year basis.

Other operating expenses were $249 million in the reported quarter compared with $38 million in the year-ago quarter.

Overall operating income decreased 58.6% from the year-ago quarter to $3.7 billion. The operating margin contracted 510 bps from the year-ago quarter to 3.1%.

Operating income for AWS was $6.5 billion, up 56.6% year over year.

The North America segment reported an operating loss of $1.6 billion against the operating income of $3.4 billion in the prior-year quarter. Also, the International segment reported an operating loss of $1.3 billion against the operating income of $1.2 billion in the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 31, 2022, cash and cash equivalents were $36.4 billion, up from $36.2 billion as of Dec 31, 2021. Marketable securities totaled $29.9 billion at the end of the first quarter, down from $59.8 billion at the end of the fourth quarter.

Long-term debt was $47.6 billion in the reported quarter, down from $48.7 billion in the previous quarter.

In the first quarter, the company used $2.8 billion of cash in operations against $22.1 billion of cash generated from operations in the fourth quarter.

On a trailing 12-month basis, free cash flow was an outflow of $18.6 billion compared with $9.1 billion in the prior quarter.

Guidance

For second-quarter 2022, Amazon expects net sales between $116 billion and $121 billion. Net sales are expected to grow 3-7% year over year. The Zacks Consensus Estimate for net sales is pegged at $126.3 billion.

Management projects an unfavorable foreign exchange impact of 200 bps.

Operating income (loss) is likely to be between ($1) billion and $3 billion.

Zacks Rank & Stocks to Consider

Currently, Amazon carries a Zacks Rank #3 (Hold).

Investors interested in the broader technology sector can consider stocks like Jabil JBL, Jack Henry & Associates JKHY, and Broadcom AVGO. While Jabil currently sports a Zacks Rank #1 (Strong Buy), Jack Henry & Associates and Broadcom carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Jabil has gained 5.5% over a year. The long-term earnings growth rate for JBL is currently projected at 12%.

Jack Henry & Associates has gained 16.9% over a year. The long-term earnings growth rate for JKHY is currently projected at 17%.

Broadcom has gained 20% over a year. The long-term earnings growth rate for AVGO is currently projected at 14.5%.


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