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Amazon shares drop on slowing online sales growth
Global Banking and Finance Review
Company
By Savyata Mishra
(Reuters) -Shares of Amazon.com fell more than 12% on Friday after the company reported slowing online sales growth in the second quarter and said consumers were seeking out cheaper options for purchases.
The commentary from the online shopping behemoth is in line with recent value-conscious consumer behavior, ahead of retail giant Walmart’s quarterly results later this month.
Amazon CEO Andy Jassy said on a post-earnings call that customers were trading down on price when they could.
The company’s shares were trading at about $165, with the stock among the biggest drags on the Nasdaq. Amazon was set to lose about $188 billion in market value, if losses hold.
“Consumer spending trends facing retail peers appear to have finally caught up with Amazon’s P&L,” MoffettNathanson analyst Michael Morton said.
Amazon’s online stores sales rose 5% in the second quarter to $55.4 billion, compared with growth of 7% in the first quarter.
Competition from Temu and Shein has intensified in the e-commerce retail business, with the companies selling a wide variety of goods at bargain-basement prices direct from China.
Amazon faces two challenges this year, a consumer that continues to search out lower prices and competition largely from discount sites such as Temu and Shein,” said Art Hogan, chief market strategist at B. Riley Wealth.
United Parcel Service, the world’s biggest package delivery firm, is hiking fees to boost revenue which has fallen after Temu and Shein made low-margin, slower deliveries a bigger percentage of the Atlanta-based company’s business. Amazon is UPS’ biggest customer.
Amazon’s quarterly profit and cloud computing sales, however, beat analysts’ estimates.
Revenue at Amazon Web Services, its cloud unit, rose a better-than-expected 19% to $26.3 billion, days after Microsoft’s cloud division Azure fell short of market estimates and sparked more concerns around Big Tech’s hefty AI spend.
Seattle-based Amazon is playing catch up with rivals Microsoft, which partners with OpenAI, and Google in developing its own so-called large language models that can respond nearly instantly to complicated queries or prompts.
Amazon’s forward price-to-earnings ratio for the next 12 months, a common benchmark for valuing stocks, was 33.92, compared with Alphabet’s 20.46 and Microsoft’s 30.88, according to LSEG data.
(Reporting by Savyata Mishra, Deborah Sophia and Granth Vanaik in Bengaluru; Additional reporting by Amanda Cooper in London; Editing by Alun John and Shounak Dasgupta)
Online sales growth refers to the increase in revenue generated from sales made through online platforms over a specific period.
Market value is the total worth of a company as determined by the stock market, calculated by multiplying the stock price by the total number of outstanding shares.
The price-to-earnings (P/E) ratio is a valuation metric calculated by dividing a company's current share price by its earnings per share, indicating how much investors are willing to pay for a dollar of earnings.
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