27 October (Reuters) – Amazon.com Inc on Thursday forecast a slowdown in sales growth for the holiday season, disappointing Wall Street and warning that inflation-conscious consumers and businesses would have less money to spend.
Amazon’s 12% share decline in extended trading wiped out its market cap by about $140 billion, more than the combined value of companies like Morgan Stanley, Netflix, and Lockheed Martin.
For months, the world’s largest online retailer has been battling unsettling macroeconomic tides. It held not one, but two cornerstone sales events in one year: Prime Day in July and this month’s Prime Early Access Sale.
It sold more items than ever to its Prime loyalty shoppers for the summer event, and in the meantime the company was seeking revenue from higher Prime subscription fees and a markup for some retailers.
According to Refinitiv’s IBES data, net sales for the third quarter ended Sept. 30 were $127.1 billion, still slightly lower than the $127.5 billion expected by analysts.
But the macroeconomic outlook has not brightened. Speaking to reporters, Amazon’s chief financial officer Brian Olsavsky said the company is bracing for slower economic growth.
“We’re seeing signs everywhere that people’s budgets are tight, inflation is still high, energy costs are an extra layer caused by other problems,” he said. “We, like most companies, are preparing for a potentially slower phase of growth.”
European consumers in particular have been spending less than their American counterparts as they have been hit by the war in Ukraine and higher fuel costs, which have also increased Amazon’s spending, he told reporters and analysts. The company’s international segment operating loss increased to $2.5 billion in the third quarter from $0.9 billion a year earlier.
While Amazon would continue to fund early-stage companies like its lucrative cloud-computing and advertising divisions, it would question costs elsewhere and be cautious about hiring, Olsavsky said.
Michael Pachter, analyst at Wedbush Securities said: “It’s possible that retail sales are down year-on-year. I don’t actually think that’s going to happen, but the market definitely doesn’t like it.”
Amazon forecast net sales of between $140 billion and $148 billion, or growth of just 2% year over year. Analysts had expected $155.2 billion.
Revenue growth in the previous holiday quarter was 9% in 2021 and 38% in 2020.
Across the retail sector, US online sales are expected to rise at a slower pace in years this holiday season. Consumer goods group Unilever PLC also believes that “sentiment in Europe is at an all-time low,” its chief financial officer said earlier.
Results in the technology sector were just as bad this week for Alphabet Inc.’s cloud-computing rivals Microsoft Corp and Google, adding to recession fears. US consumer confidence reversed in October.
“Big tech companies are not immune to an economic slowdown, especially if they are consumer-centric,” said Rick Meckler, a partner at Cherry Lane Investments in New Jersey.
Amazon Web Services (AWS), the company’s lucrative data storage and computing division serving businesses, has been of limited help. While it provided much-needed operating income, along with competitor Microsoft’s Azure cloud, Amazon fell short of estimates.
Amazon’s cloud revenue growth has been steadily declining over the past year. Net sales there increased 28% in the July-September period, up from 39% a year ago on a currency-neutral basis.
Paolo Pescatore, Analyst at PP Foresight said: “With so much unpredictability, there are major concerns affecting corporate confidence in investments. This in turn affects the broader cloud sector and companies like AWS and Azure.”
Amid high inflation and falling consumer demand, Amazon’s chief executive officer Andy Jassy has been trying to keep costs under control across the company’s many businesses.
Amazon has slowed the opening of warehouses and has not filled some vacancies. The company said it would shut down its virtual health service by the end of the year, and it is scaling back long-touted efforts to deliver goods via small autonomous citizen vans.
Still, global shipping costs rose 10% to $19.9 billion in the third quarter. Amazon’s net income also fell to $2.9 billion in the third quarter, beating analysts’ median estimate of $2.2 billion in profit, according to Refinitiv’s IBES data.
In a statement, Jassy said: “There is obviously a lot happening in the macro environment and we will balance our investments to be more streamlined without jeopardizing our key long-term, strategic bets.” (Reporting by Jeffrey Dastin in Palo Alto, California and Tiyashi Datta in Bengaluru; Additional reporting by Lewis Krauskopf and Noel Randewich; Editing by Anil D’Silva, Aurora Ellis and Jonathan Oatis)