new York Surprise! The growth engine Amazon is not immune to inflation and the economic environment. In the first quarter, the online retailer shocked the markets with a billion-dollar loss and the lowest growth rates since 2001 and prepared for difficult times. The share price has fallen by more than twelve percent.
If you look closely at the numbers, the loss is mainly due to Amazon’s stake in the electric car manufacturer Rivian. After its brilliant IPO in November, it lost around three quarters of its market value in the first quarter. As a result, Amazon wrote off $7.6 billion on its shares. However, considering that Rivian’s stake in Amazon added $11.8 billion in the fourth quarter of 2021, it was still a good deal.
But even without this special item, things are not looking particularly rosy at Amazon: In classic online trading, from which the group once emerged, Amazon is again making losses. And this time, AWS’s lucrative cloud business couldn’t pull out the losses on its own.
What happened? Amazon has arrived in reality. And that is currently determined by inflation, supply chain problems and the war in Ukraine. The high prices do not stop at Amazon either: Compared to the times before the pandemic, the costs for a container from overseas have more than doubled. Gasoline costs 50 percent more in the USA than it did two years ago. And the employees have pushed through higher salaries in the empty labor market in the USA.
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All of this in an environment in which customers have become accustomed to zero shipping costs and can’t even add a little more for petrol.
Two billion dollars additional costs
Inflation has cost $2 billion in additional costs, management said, and it could also affect consumer sentiment if products become more expensive.
Is this bad for Amazon? Yes, because online retail is likely to slow down in the coming months. In the current quarter, Amazon only expects a total of $116 to $121 billion in sales and not $125 billion, as most analysts had expected.
>>> Also read: Amazon shocked with loss of billions – share loses around ten percent
Is that cause for panic? No, because even a growth rate of seven percent in the first quarter after a boom year in the pandemic is still a strong performance and because Amazon also has to be able to cope with a short pause in growth. In addition, Amazon has already worked harder than other retailers on its own supply chains and its own logistics in the form of planes, ships and trucks. And no, because Amazon’s cloud division was still able to grow 37 percent in the past quarter despite stronger competition and will probably continue to grow in the future.
Amazon will suffer from inflation, and Amazon will grow more slowly as the global economy slows. Investors who are accustomed to success must also adapt to this. But there is no reason to write off Amazon, at least in the medium term.
More: Amazon shocked with a loss of billions – the share loses around ten percent.