Amazon.com, Inc. (NASDAQ: AMZN) became an inspiration for other players in the eCommerce sector as the online retailer successfully channelized its resources to tap into the spike in demand for home delivery during the pandemic. More than two years into the crisis, those tailwinds seem to have died down as market reopening gained momentum, rather the business is affected by challenges like inflation and logistics issues.
The company entered fiscal 2022 on a dismal note and surprised shareholders by reporting a net loss for the first quarter. In the second quarter also the bottom line remained in the negative territory, triggering speculation that the business model needs to be revisited.
After hitting an all-time high more than a year ago, Amazon’s shares had mostly traded sideways until they started dropping a few months ago. At one point, the price dipped to a two-year low — which is adjusted for the recent 20-for-1 stock split — eliciting fresh interest among prospective investors who had kept away from the stock due to the high valuation.
Soon it bounced back from the short-lived slowdown and gained further after the earnings announcement. While the disappointing outcome – negative earnings and muted revenue growth that is atypical of Amazon – came as a dampener for the market, continued expansion of the cloud business lifted sentiment.
In short, AMZN currently offers a rare opportunity that investors wouldn’t want to ignore. Considering its track record of successfully navigating adversities, the stock looks poised to continue the upward journey and reach new highs in the coming months. Almost all analysts who follow the stock are optimistic about its prospects. Nevertheless, income investors might remain skeptical since the company does not pay dividends and is unlikely to do so in the near future.
For the first two quarters, the e-commerce giant reported a net loss, reversing the long-term trend of recording profit consistently. The weakness can be attributed mainly to pretax valuation losses on the company’s investment in electric-vehicle maker Rivian Automotive Inc. (NASDAQ: RIVN). Since it is a one-off cost, the latest number does not imply that there is a fundamental weakness, but it makes the comparison with analysts’ estimates difficult.
The $ 0.20-per-share loss marked a sharp deterioration from the prior-year period when the company reported profit. Revenues moved up 7% annually to $121.2 billion and topped expectations, with strong contributions from the cloud business. Interestingly, digital sales declined 4% during the three-month period. The highlight of the report is the strong performance of Amazon Web Services, which grew by a third year-over-year. Meanwhile, efforts are on to ease the impact of inflation and enhance margins through initiatives like cost reduction with a focus on improving the productivity of fulfillment centers.
From Amazon’s Q2 2022 earnings conference call:
“Inflationary pressures remained at elevated levels in Q2, similar to what we saw in Q1. These include pressures from higher fuel, trucking, air, and ocean shipping rates, which we expect will continue into Q3. We made strides to improve fulfillment network productivity in Q2. Staffing levels were more in line with rising Q2 demand, and we saw better optimization of our fulfillment network.”
Extending the post-earnings gains, Amazon’s stock closed the last trading session higher around $145. It has gained 25% in the past 30 days.
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