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It gives weak outlook amid recession fears after Amazon stock slides

It gives weak outlook amid recession fears after Amazon stock slides
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amazon.com inc

AMZN -4.06%

Sales in the current quarter are expected to fall far short of expectations, sinking its stock and offering the latest sign of how shifting economic forces are hitting tech giants that have thrived during the pandemic.

The company said Thursday that sales in the recently ended third quarter rose 15% from a year earlier, with net income of $2.9 billion.Its first quarter profit in 2022Although still a 9% decline from the same period last year.

The e-commerce giant shocked investors with current revenue estimates of $140 billion to $148 billion — more than the $155 billion analysts had expected, according to FactSet. Amazon, which said estimates included a big hit from foreign-exchange factors, also said it expected operating income of anywhere between zero and $4 billion, reflecting uncertainty in what is traditionally the biggest quarter of the year due to holiday shopping.

Shares of the company fell more than 14% in after-hours trading after the results. If they are at a lower level Amazon’s valuation will drop below $1 trillionWhich is the first hit in 2018.

The pessimistic outlook capped an extraordinary several days in which shares of other tech giants also fell after their results showed poor conditions in various regions.

share of

Facebook

Parent Meta Platforms Inc., already troubled over the past year, Down about 25% on Thursday After reporting it This is the second quarterly revenue decline in a row a day ago

Microsoft Corporation

The stock also fell after Tuesday’s delivery of the worst net income decline in more than two years and the weakest revenue growth in more than five years. google-parent

the alphabet inc

Likewise Investors disappointed with sluggish sales.

These tech companies flourished during the pandemic, as life and work suddenly shifted more and more to the Internet, pushing up sales and encouraging already fast-growing companies to accelerate hiring and investment.

Now one by one, That engine is sputtering that drives growth. Sales of personal computers and other gadgets are declining. Consumers, hobbled by inflation, are cutting back their spending massively, while companies are tightening their spending on everything from digital advertising to IT services.

“Certainly there’s a lot going on in the macroeconomic environment, and we’re going to balance that to streamline our investments without compromising our core long-term, strategic bets,” Amazon Chief Executive Andy Jassy said Thursday.

In the third quarter, Amazon’s online store sales rose 7% to $53.48 billion after falling in the most recent quarter. The segment mainly includes product sales on its flagship site and digital media content. Its online sales grew from its annual Prime Day sales, which fell in the third quarter this year compared to the second quarter last year.

Although still the nation’s largest online store, Amazon’s e-commerce division has struggled to grow this year. The company reported 4% year-over-year growth in its online store segment in the second quarter. This marks the biggest drop since the metric was first reported in 2016.

This year, Amazon’s e-commerce machine — which has grown at breakneck speed for a decade — is showing signs that it may be entering a phase of slower growth. After building and employing multibillion-dollar infrastructure, it now has to contend with concerns about high inflation and a recession weighing on consumer spending.

Chief Financial Officer Brian Olsavsky said the company has entered a period of caution.

“Like most companies we are preparing for what could be a period of slow growth. We’re going to be very careful about our hiring,” Mr. Olsavsky said during a call with reporters Thursday. “We’re definitely looking at our cost structure and looking for areas where we can save money.”

He said Amazon is “seeing signs all around that people’s budgets are tight, inflation is still high.”

Analysts say the new challenges Amazon is facing in e-commerce could be long-lasting.

Amazon has the largest share of online commerce, about 38%, but its market share has plateaued in recent years, according to market research firm Insider Intelligence. Analysts say the size of the company makes it unlikely that growth in the e-commerce unit will hit the same pace. Dealing with increased competition from Amazon

Walmart Inc.,

aim Corporation

and others.

Mr. Jacy has moved to cut costs. The company stopped subleasing millions of square feet of additional warehouse space and stopped opening new facilities and thinned its hourly workforce through attrition earlier.

item Hiring has been postponed until the end of the year In its corporate retail division, the segment that drives core sales and accounts for a large portion of this year’s slowdown. The company has stopped hiring among some teams in its Amazon Web Services cloud-computing division.

While Amazon’s earnings continue to be helped by AWS and its expanding advertising business, growth in the cloud business has slowed. AWS had sales of $20.5 billion in the third quarter, a 27% increase but one of the lowest rates posted by the unit in recent quarters. Mr. Olsavsky said the company has seen AWS customers “work to cut their bills.”

Amazon’s ad revenue grew 25% to $9.5 billion.

Amazon is approaching the end of the year with additional challenges. After needing fewer blue-collar workers earlier in the year, it looked to add more than 100,000 workers to its warehouses to meet expected holiday demand. Still, that strategy came at a cost. Amazon recently said it would spend $1 billion The average starting salary increase is $19 an hour Nationwide and is allocating millions to raise wages and benefits for its delivery workers.

Consumers will be more likely to return to brick-and-mortar stores for their holiday shopping this year, and economic concerns will likely weigh on spending, according to analysts. Amazon’s own

Jeff Bezos

He seemed cautious about the future. He recently said it was time to “batt the hatches down,” citing warning signs that the U.S. is headed for recession.

Enter Sebastian Herrera sebastian.herrera@wsj.com

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