A strong second-quarter is far from guaranteed for Amazon. | Image: REUTERS/Kevin Mohatt/File Photo
- Amazon will release its second-quarter results on Thursday after market close.
- In Q1, stay-at-home orders contributed to e-commerce growth.
- A record fall in overall retail sales in Q2 could see Amazon miss estimates.
Amazon (NASDAQ:AMZN) has benefited from the pandemic. In the first quarter, the online retailer exceeded the expected revenue estimates by nearly $2 billion. Year-to-date, Amazon’s stock has appreciated by about 60% , while Jeff Bezos has added over $60 billion to his net worth.
With the virus continuing to ravage the world, it is expected that Amazon will keep benefitting.
Amazon’s Revenue and Profit
Here is an unpopular opinion–Amazon’s Q2 results are likely to disappoint, showing weaker revenue and profit growth than analysts anticipate.
The e-commerce behemoth releases its latest quarterly financial report on July 30.
Here’s how Amazon’s second-quarter since the pandemic could turn out to be a disappointment.
June Retail Sales Data Sent a Warning
E-commerce recorded unprecedented growth as a result of the lockdown measures. The lifting of these measures in the second quarter resulted in e-commerce sales declining as consumers did more of their shopping at brick-and-mortar stores. In June, e-commerce sales fell by 2.4% , according to the U.S. retail sales data released by the Commerce Department.
Overall, retail sales across fell 14.7% in April, the first month of Q2. This was the largest drop in decades and the most significant decline in retail sales since the pandemic began.
Such a fall is significant enough to impact Amazon’s sales despite the recovery over the subsequent two months. May and June saw overall retail sales climb by 18.2% and 7.5%, respectively.
Will Amazon’s Cloud Business Fall Like Microsoft Azure’s?
Amazon Web Services has been a star performer for Amazon, providing stellar revenue and profit growth. If Microsoft (NASDAQ:MSFT) Azure’s results are anything to go by, though, spending on cloud computing is slowing down.
After rising 76% in Q2 2019, 73% in Q3 2019, 64% in Q4 2019, 59% in Q1 2020, 62% in Q2 2020, and 59% in Q3 2020, Azure’s growth fell below 50% in in the most recent quarter.
The weakest growth in several quarters was attributed to lower spending by existing small- and medium-sized businesses. Difficulty acquiring new customers amid the pandemic was also a factor.
Amazon Web Services is the undisputed king of cloud computing, but it is not immune from the challenging macroeconomic environment.
AWS Growth No Longer on Cloud Nine
Already, Amazon Web Services’ revenue growth has been consistently declining since the second quarter of 2018. Since Q2 2018, when revenue growth hit 49%, the rate has been falling, with the most recent quarter witnessing 33% growth.
It would not be a surprise if this decline continued, especially given Microsoft Azure’s recent weakness.
Additionally, it is almost a given that Amazon’s earnings per share will disappoint as pandemic-related expenses rise.
In its guidance, Amazon projected an operating income of between negative $1.5 billion to $1.5 billion on account of $4 billion allocated to fight the pandemic.
With the pandemic taking on a new life in the American South and West, Amazon might have to spend even more to keep its workers and customers safe. This will hit profits.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.
