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Amazon predicts a slowdown in sales growth for the holidays; stock fall

For months, the world’s largest online retailer has battled against troubling macroeconomic tides.

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 had less money to spend.

Amazon’s 12% extended-trade stock drop wiped out nearly $140 billion in its market capitalization, which is more than the overall value of companies like Morgan Stanley, Netflix and Lockheed Martin.

For months, the world’s largest online retailer has battled against troubling macroeconomic tides. It hosted not one, but two cornerstone sales events a year: Prime Day in July, and the Prime Early Access Sale this month.

For the summer event, it sold more items to its Prime loyalty shoppers than ever before, and, in the meantime, the company solicited revenue from higher Prime subscription fees and surcharges at certain merchants.

Net sales for the third quarter ended September 30 were $127.1 billion, according to IBES data from Refinitiv, still slightly below analysts’ expectations of $127.5 billion.

But the macro outlook has not brightened. In a call with reporters, Amazon Chief Financial Officer Brian Olsavsky said the company is poised for slow economic growth.

“We’re seeing signs all around that, again, people’s budgets are tight, inflation is still high, energy costs are an extra layer on top because of other issues,” he said. “We are preparing for a slow growth period like most companies.”

European consumers in particular have spent less than their US counterparts, pinched 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 operation loss widened to $2.5 billion in the third quarter, up from $0.9 billion a year ago.

While Amazon will continue to fund phase one businesses such as its lucrative cloud-computing and advertising divisions, it will question costs elsewhere and proceed cautiously on hiring, Olsavsky said.

“It’s possible that retail sales will decline year-over-year. I really don’t believe that will happen, but the market certainly doesn’t like it,” said Michael Pachter, analyst at Wedbush Securities.

Amazon forecasts net sales between $140 billion and $148 billion, or a 2% decrease from a year ago. Analysts were expecting $155.2 billion.

Pre-holiday quarter sales growth was 9% in 2021 and 38% in 2020.

cloud missed

In retail, US online sales are expected to grow at the slowest pace this holiday season. Consumer goods company Unilever Plc also believes that “sentiment in Europe is at an all-time low,” its chief financial officer said earlier.

Results in the tech industry were just as bad this week for cloud-computing rivals Microsoft Corp and Alphabet Inc.’s Google, raising fears of a recession. US consumer confidence took a U-turn in October.

“Big tech companies are not impervious to a slowdown in the economy, especially if they are consumer-driven,” said Rick Meckler, partner at Cherry Lane Investments in New Jersey.

Amazon Web Services (AWS), the company’s lucrative data-storage and computing division serving enterprises, helped only so much. While it provided much-needed operating income, just like rival Microsoft’s Azure Cloud, Amazon fell short of estimates.

Amazon’s cloud sales growth has declined steadily over the past year. Net sales grew 28% in the July-September period, up from 39% a year ago, when adjusted for changes in foreign currency.

“With so much unpredictability comes great concern,” said PP Foresight analyst Paolo Pescatore, which is affecting investing confidence among enterprises. In turn, this is affecting the broader cloud sector and companies like AWS and Azure. “

Faced with high inflation and dwindling consumer demand, Amazon Chief Executive Officer Andy Jesse has raced to control costs across the company’s sprawling businesses.

Amazon has slowed warehouse openings and refrained from filling some open positions. It announced that it would be shutting down its virtual healthcare service by the end of the year, and it is withdrawing from a long-standing effort to deliver goods via small autonomous sidewalk cars.

Still, worldwide shipping costs rose 10% in the third quarter to $19.9 billion. Amazon’s net income also fell to $2.9 billion in the third quarter, according to IBES data from Refinitiv, beating analysts’ average estimate of $2.2 billion.

In a statement, Jassi said, “Clearly a lot is happening in the macroeconomic environment, and we will balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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