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Amazon stock falls 6% as pandemic sales boom appears to stall

Amazon.com Inc. sales growth slowed down in the second quarter of the year as bricks-and-mortar stores reopened across the U.S., sending shares south in after-hours trading Thursday.

Amazon
AMZN,
-0.84%

reported second-quarter earnings of $7.78 billion, or $15.12 a share, up from $10.30 a share a year ago, when shelter-in-place requirements from the COVID-19 pandemic began and led to big uptakes in e-commerce. Sales grew to $113.1 billion from $88.9 billion a year ago, missing expectations as sales that had been growing more than 40% in recent quarters fell to growth of 27%.

Analysts on average expected earnings of $12.28 a share on sales of $115.4 billion, according to FactSet. Amazon shares declined more than 6% in after-hours trading, and other e-commerce stocks joined in: Etsy Inc.
ETSY,
-1.95%

declined more than 2%, Shopify Inc.
SHOP,
-0.85%

fell more than 1% and eBay Inc.
EBAY,
+0.71%

decreased about 0.9%.

Sales in Amazon’s online stores grew just 13% in the quarter to $53.16 billion from $45.9 billion a year ago in the same quarter, while analysts on average expected $57.35 billion, according to FactSet. Amazon’s online sales had grown by at least 37% in each of the prior four quarters. Amazon’s physical stores, which includes Whole Foods Market grocery stores, saw revenue grow 10% to $4.2 billion from $3.77 billion a year ago.

The results include Amazon’s annual Prime Day sale, and analysts had debated whether the sale had prompted as much activity on the company’s website as in previous years. There were also concerns about a slowdown in overall e-commerce activity as many areas of the U.S. reopened brick-and-mortar stores after vaccinations led to a slowdown in COVID-19 transmission and stimulus payments dried up.

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“We believe two factors have been weighing down Amazon shares: soft Prime Day results, and a highly debated outlook for 2H Retail/Commerce after unemployment benefits lapse,” MKM Partners managing director Rohit Kalkarni wrote ahead of the report, while confirming his shop’s Amazon buy rating, $4,075 price target and designation as top pick among megacap stocks for the second half. “However, on the strength of Amazon advertising, subscriptions (Prime), and cloud computing (AWS), we expect Amazon to report upside to Street and its guidance in 2Q.”

Amazon’s other businesses continued to show strong growth rates, as Kulkarni predicted. Amazon’s “other” revenue, which is largely online-advertising sales, grew 83% to $7.92 billion from $4.22 billion a year ago, following a trend of booming online ad sales shown in reports from Google parent Alphabet Inc.
GOOGL,
-0.23%

GOOG,
+0.12%

and social-media giant Facebook Inc.
FB,
-4.01%

earlier in the week.

Read: YouTube is as big as Netflix, and growing much faster

Amazon Web Services, or AWS, reported sales of $14.81 billion, up 37% from $10.81 billion a year ago, while analysts were expecting $14.28 billion. The cloud-computing arm of Amazon continues to be the biggest driver of profit, reporting operating income of $4.19 billion from $3.36 billion a year ago, accounting for nearly 60% of Amazon’s total operating income of $7.7 billion.

“If Amazon shows another quarter of AWS acceleration that may be a catalyst, in and of itself, for the stock,” MKM Partners technology sector specialist Dan Forman wrote ahead of the report.

Amazon predicted that a slowdown in sales growth would continue, with a forecast for third-quarter sales of $106 billion to $112 billion and operating income of $2.5 billion to $6 billion. Analysts on average had been predicting third-quarter operating income of $8.24 billion on net sales of $119.31 billion, according to FactSet.

Amazon scheduled a conference call for 5:30 p.m. Eastern, but has not said if new Chief Executive Andy Jassy would join the call. His predecessor, Jeff Bezos, stopped joining the quarterly confabs with analysts years ago, leaving the duty to Amazon’s chief financial officer.

“Over the past 18 months, our consumer business has been called on to deliver an unprecedented number of items, including PPE, food and other products that helped communities around the world cope with the difficult circumstances of the pandemic,” Jassy said in a statement included with his first earnings report since taking over the top spot from founder Bezos, who transitioned to chairman of the company. “At the same time, AWS has helped so many businesses and governments maintain business continuity, and we’ve seen AWS growth reaccelerate as more companies bring forward plans to transform their businesses and move to the cloud.”

Regardless, analysts expected to hear about Amazon’s plans for its Amazon Prime Video streaming service after a proposed $8.5 billion acquisition of MGM’s movie catalog, which is reportedly being investigated by the Federal Trade Commission, as well as other topics.

For more: Amazon’s $8.45B MGM deal includes icons like the James Bond movies and the film ‘Thelma & Louise’

“The company will likely provide an update on its video entertainment strategy following the recent acquisition of MGM Studios, and other key topics of discussion may include an update on the AWS backlog, momentum in the company’s advertising business, and operating margin expectations for 2H21,” Cannacaord Genuity analysts wrote in a preview, while maintaining their buy rating and $4,400 price target.

Despite strong gains during the COVID-19 pandemic, Amazon stock has lagged the S&P 500 index’s
SPX,
+0.42%

growth, gaining 10.1% so far this year and 18.3% in the past 12 months, as the S&P 500 increased 17.2% and 35.1% in those periods, respectively. Some analysts expected Thursday’s earnings report to potentially kick in fresh gains, though options traders appeared to disagree.

“We have been suggesting for some time now that as Amazon hurdles the tougher COVID compares along with the 2019 launch of 1-Day shipping, and as we get increased clarity from the company on y/y spending compares post-COVID, that the stock could potentially break out and make new highs,” MKM’s Forman wrote Thursday morning.

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