Amazon (AMZN) Q2 Revenue: What to Expect

JThere is no doubt that rising interest rates and inflation are current threats to consumer spending, which accounts for about 70% of US economic growth – as a percentage of GDP. In addition to being a threat to future revenues, inflation also drives up the operating expenses of many businesses. And it has had an impact on Amazon (AMZN), the second largest retailer in the country.

In recent quarters, investors have wondered if Amazon can ride out these headwinds. Amazon’s performance has also come into question since the company reported a first-quarter loss of $3.8 billion. Not only was it its first quarterly loss in seven years, but its operating profit fell from $8.9 billion to $3.7 billion, while its operating margin fell 5% at 3.2%. In response, Amazon stock was punished, falling about 45% from its 52-week high of $188 (adjusted for distribution).

Down more than 25% year-to-date, including 27% in nine months, now may be a good time to buy as the company prepares to report its second-quarter fiscal 2022 results after the closing bell on Thursday. In the last quarter, Amazon noted that inflationary pressures were driving $2 billion in additional costs, as was excess processing capacity needed to meet pandemic-fueled e-commerce demand. Amazon, however, pivots to compensate for these weaknesses.

The company affirmed its interest in healthcare last week when it recently spent nearly $3.9 billion to acquire One Medical, an operator of a membership-based primary care platform. The all-cash transaction values ​​One Medical at $18 per share, a premium of nearly 70%. The merits of this deal and improvements to the company’s growth metrics will be the areas investors will focus on during the conference call. As the market reassesses tech valuations, it’s hard to ignore Amazon’s relative value, with the stock now trading around 35% below its 52-week high.

In the three months ending in June, the Seattle-based company is expected to earn 15 cents per share on revenue of $119.42 billion. That compares to the year-ago quarter when earnings were 76 cents per share on revenue of $115.20 billion. For the full year, ending in December, earnings are expected to be 64 cents per share, compared to $3.24 a year ago, while annual revenue of $520.43 billion would increase 10 .8% year-on-year.

The expected year-over-year decline in full-year earnings is one of the many reasons Amazon shares have been under pressure this year. Along with rising costs and rising inflation, the company faced labor shortages. The company ramped up capacity in 2021, increasing capital spending on fulfillment centers to meet unexpected e-commerce demand. Demand was, however, disrupted by variants of Covid in the first half of the year.

The disruption resulted in a net loss of $3.8 billion in the first quarter, compared to a net profit of $8.1 billion in the same quarter of 2021. The company’s operating margin in the first quarter also suffered, dropping five percentage points to 3.2%. That put its first-quarter free cash flow at negative $18.6 billion for the trailing year, wiping out the $26.4 billion free cash flow from the prior year.

But all was not bad. The company’s first-quarter AWS cloud business delivered 37% revenue growth, from $13.5 billion to $18.44 billion year-over-year. Thanks to greater economies of scale, AWS margins were also strong, growing to 35.3% in the quarter from 30.8% a year earlier. On Thursday, the market will want to see if Amazon can improve on those metrics over the next several quarters.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.