Amazon Sees Decelerating Sales As Post-Lockdown Life Resumes

This probably isn’t how Andy Jassy wanted his first earnings report as Amazon CEO to go.

Amid increasing eCommerce competition, regulatory headwinds and consumers’ return to in-person shopping, Amazon reported a rare quarterly sales miss and lackluster third quarter projections despite an early Prime Day in June in which consumers spent a record $11 billion.

The eCommerce giant reported $113 billion in net sales over the three months ending June 30, up 27 percent versus the same period last year but below analysts’ expectations of $115 billion. Net product sales accounted for $58 billion, while net service sales accounted for $55 billion.

Like his predecessor and mentor Jeff Bezos, Jassy did not speak on Amazon’s quarterly earnings conference call with analysts and investors, but Chief Financial Officer Brian Olsavsky said moderated spending from Prime members and consumers’ increased mobility as vaccination rates rise were key contributors to the deceleration. He also noted that over the past 18 months, Amazon has struggled to properly estimate the impact of COVID-19, typically overperforming projections.

“I think the impact of people getting vaccinated and getting out in the world — not only shopping offline but also living life and getting out — it takes away from shopping time,” Olsavsky said on the conference call.

Despite some analysts curious about the possibility of a second Prime Day given how early this year’s event was, Olsavsky said he didn’t have anything to announce.

“Our trend has been once a year,” he said.

Fulfillment Network

Olsavsky said Amazon is still making “a significant amount of investment” in its fulfillment network as demand for Fulfillment by Amazon from third-party sellers continues to increase.

At the beginning of the pandemic, Amazon was forced to throttle its shipping capacity as consumer demand for eCommerce spiked, which inevitably hurt third-party sellers, vendors and Amazon’s own retail business. Olsavsky said the company’s current investments, including new fulfillment centers and middle-mile and last-mile capabilities, are in part to ensure that doesn’t happen again.

“Throttling of space for third-party sellers is not something we like to do,” the CFO said. “We don’t think we’re the only ones that had that issue, and that’s why we’re building out our network.”

Over the last 18 months, Olsavsky said, Amazon’s entire fulfillment network has nearly doubled in size. The number of products being fulfilled by Amazon has doubled in the past two years, and the delivery arm of the fulfillment business has more than doubled in that same time period.

With the focus on meeting consumer demand, though, expansion of Amazon’s one-day delivery to more parts of the U.S. has slowed — something that the company is keen to correct.

“We are not back to where we want to be on a number of dimensions,” Olsavsky said.

Looking Ahead

Net sales in the third quarter — the first full quarter of Jassy’s tenure — are expected to be between $106 billion and $112 billion, which would be between 10 percent and 16 percent year-over-year growth. Still, that’s below the nearly $119 billion that Wall Street was hoping Amazon would project and lower than Amazon’s historic growth rate of approximately 20 percent.

Olsavsky noted that the two-year compounded annual growth rate remains above 25 percent, but “we do expect this pattern of difficult year-over-year revenue comps to continue for the next few quarters.”

One area of particular concern for Amazon is finding enough employees, especially going into the holiday shopping season. The company moved its usual October wage increase up to May this year and has spent a lot of money on sign-on bonuses, which Olsavsky said has led to “very good staffing levels” — but it’s not without cost.

“It’s a very competitive labor market out there, and certainly the biggest contributor to inflationary pressures that we’re seeing as a business,” he said.

Even with a new CEO, Olsavsky said Amazon’s focus and trajectory hasn’t changed. Bezos remains executive chairman of the company he founded in 1994, and Jassy has been by his side since 1997.

“Andy has hit the ground running,” the CFO said. “He’s continuing to have a very high bar for customer experience, high standards for operational excellence … and everything else that Amazon is known for internally and externally.”