Amazon reports Q2 earnings, beating Wall Street expectations but shrinking staff headcount

Amazon reported their second quarter earnings on Thursday, with the results seeing Amazon shares climb more than 13% in extended trading and providing a positive guidance for Q3.

Amazon reported revenue of US$121.23 billion vs. US$119.09 billion expected in its 2022 second quarter, bolstering confidence for the third quarter.

Amazon CEO Andy Jassy.

Amazon said it expects to post third-quarter revenue between US$125 billion and US$130 billion, denoting growth of 13% to 17% – analysts expected sales of US$126.4 billion for Q3.

Amazon Web Services saw US$19.7 billion in revenue vs. the US$19.56 billion expected – and a notable 33% in growth.

Advertising revenue also beat Wall Street estimations, with revenue reaching US$8.76 billion vs. the US$8.65 billion expected.

Amazon’s ad business saw growth climb 18% in the period, a stark contrast to Meta’s first ever drop in ad revenue.

Operating cash flow decreased 40% to $35.6 billion for the trailing twelve months, compared with $59.3 billion for the trailing twelve months ended June 30, 2021.

E-commerce business suffers, AWS thrives

Amazon’s primary e-commerce offering is seeing stagnation and unfavourable results. Online sales are no longer booming like they were during the last two years of the pandemic, when lockdowns meant customers were forced to head online for their purchases.

The company’s online stores segment declined 4% year over year. Physical store sales continued to rebound from the year-ago period, growing 12%. These figures are indicative of changing patters in discretionary spending, which Amazon is navigating by bolstering its AWS offering, a segment that has maintained its status as a stable revenue stream in the Amazon business model.

However, Prime Day this year was a never-before-seen shopping bonanza, with Amazon revealing that Prime members worldwide “shopped more and saved more this Prime Day than any other Prime Day event, purchasing more than 300 million items and saving more than $1.7 billion. On July 12 and July 13, Prime members worldwide purchased more than 100,000 items per minute”.

As the economy slows and consumer spending habits change, Amazon Web services remains the business’s core profitable venture.

Amazon reported $5.72 billion in AWS operating income, up 36% year over year, below analyst estimates of $6.04 billion. The AWS operating margin narrowed to 29% from 35.3% in the first quarter

“AWS results include a greater mix of these costs, reflecting wage inflation in high demand areas including engineers and other tech workers as well as increasing technology infrastructure investment to support long-term growth,” said Amazon CFO Brian Olsavsky on an earnings call.

Amazon noted in the AWS segment of its Q2 press release that Amazon Ads has launched a new offering – Amazon Marketing Cloud (AMC) Insights on AWS.

The new solution “helps advertisers and agencies easily use AWS services when running Amazon Ads campaigns to analyze and generate reporting from the Amazon Marketing Cloud API, reducing their development time from weeks to hours. With a few clicks, AMC users can monitor ongoing ad campaign performance across reach, frequency, geography, audience, and device type to better understand how to maximize ad spend.”

Layoff season at Amazon

Macroeconomic uncertainty has led to large tech companies like Meta slowing down hiring and rescinding their initial plans to hire a set number of engineers.

On a call with reporters, Olsavsky said Amazon will continue to hire engineers for units like Amazon Web Services and advertising, but will be cautious about hiring in other areas.

Amazon reduced its headcount by 99,000 people to 1.52 million employees at the end of Q2, a move that may have been motivated by inflationary pressures and increasing logistical expenses. Olsavsky also noted in an earnings call that Amazon is also paying higher electricity rates in data centers that support its AWS operation, adding to cost pressures.

During the initial phases of the pandemic, Amazon doubled its workforce, but as supply chain issues have raged on & the talent market proves tougher than ever for employers, management is scrambling to circumvent the impacts that macro conditions could have in the long-term.


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