For months, stores have been telling customers that spending is going to be tough. It looks like not even Amazon.com Inc. is safe.
Amazon’s AMZN -8.78% stock price has been moving a lot lately because of the company’s progress in cloud computing. Amazon delivered on AWS in the most recent quarter with 19% growth, which was better than expected and faster than the previous quarter.
But Amazon shares were punished on Friday when the company posted a miss on overall revenue. They fell about 9%. According to what the company said, consumers being careful could slow down the growth of the retail business.
The way people spend their money at stores like Amazon seems to have finally caught up with Amazon’s finances, wrote MoffettNathanson expert Michael Morton. “The continued shift toward everyday essentials and [lower-priced] units, along with lower clothing seller fees to keep up with competition, have made the top-line results less clear.”
Brian White of Monness, Crespi, Hardt & Co. said that Amazon’s earnings call was “less upbeat than past gatherings,” even though the company had good results from AWS. He also said that Amazon was feeling the effects of the economic mess on customer spending.
“Signs that the consumer is under greater duress this quarter,” said Stephen Ju of UBS. “Management called out signs that Amazon’s customers are starting to trade down.” These problems are making the company less optimistic about the third quarter.
Mark Shmulik, a Bernstein expert, thinks that Amazon will gain market share in the areas where people are spending their money most. This is because people are being more careful about buying big-ticket items.
He told his clients in a note that Amazon has put a lot of effort into getting more same-day and next-day delivery for essentials. “Interestingly, one area where margins were squeezed was strength in low-priced clothing goods. This is because Amazon recently cut their referral fees to get more sellers, and it seems to be working.”
There were puts and takes in other parts of the study. For example, Morton at MoffettNathanson pointed out how much better the story about AWS was getting.
“It seems like only yesterday that everyone agreed that AWS was the AI loser because Microsoft and OpenAI beat them,” he wrote. “Now that revenue is growing faster, AWS margins are over 35%, there are tens of thousands of Bedrock customers, and the market is becoming more open to the idea that most AI models don’t have moats. AWS is back in style.”
He still doesn’t love everything Amazon does for its business. “We are not excited to see the hard to defend Project Kuiper space program putting pressure on the edges of [North America],” Morton wrote. Satellites are used in the project to try to make internet access wider.
