Photo Credit: simone.brunozzi/Flickr.com
 

Earlier last week, Amazon (Nasdaq: AMZN) reported its quarterly results that failed to impress the market. Its dismal outlook clearly indicates that the company is bracing itself for tough economic conditions.
 

Amazon’s Financials

Amazon’s third-quarter revenues grew 15% to $127.1 billion, falling short of the market’s forecast of $127.7 billion. Foreign exchange movements hurt its revenues by $5 billion in the quarter. After two consecutive quarters of losses, Amazon reported profits again and ended the quarter with a net income of $2.9 billion. On an adjusted basis, it ended the quarter with an EPS of $0.20, missing the market’s estimates by 9%.

Among key segments, revenues from Amazon Web Services (AWS) grew 28% to $20.5 billion, missing the expected $21.1 billion. This was the slowest AWS revenue growth since 2014 – when Amazon began reporting AWS revenues separately. Advertising revenues were marginally better at $9.55 billion compared with the analyst estimate of $9.48 billion.

Amazon expects its fourth quarter revenues at $140-$148 billion. The market was looking for revenues of $155.15 billion for the quarter.
 

Amazon’s Prime Performance

This July, Amazon celebrated its eighth Prime Day, which contributed approximately 400 basis points to its third-quarter sales growth. Prime members purchased more than 300 million items worldwide, making it one of the biggest Prime Day net sales events in Amazon’s history. Amazon also debuted the two largest Prime Video releases ever; The Lord of the Rings: The Rings of Power attracted over 25 million global viewers on its first day. NFL Thursday Night Football also premiered in September and accounted for more than 15 million viewers during its first broadcast.
 

Amazon’s New Products and Offerings

Within devices, Amazon Introduced a range of new Fire TV devices and entertainment experiences, including the Omni QLED Series smart TV with hands-free Alexa controls and new ambient features that turn the TV into an always-smart device when not streaming. It introduced the next generation of Echo Dot and Echo Auto, as well as upgrades to Echo Studio that allow for bass extension and custom-built spatial audio processing technology. It launched three new Kindle devices: Kindle Scribe, the first Kindle that makes it possible for customers to both read and write; the next-generation Kindle; and the next-generation Kindle Kids. It added to the Ring lineup with new security devices and features. For Alexa, it launched a new Alexa feature called Customers ask Alexa that enables brands and selling partners to answer common customer questions through Alexa and take better-informed purchase decisions.

It also announced several enhancements to AWS. It announced the general availability of the new AWS EC2 machine learning training instances, which make it possible to build more accurate machine learning models and reduce training times. It also announced the general availability of AWS IoT FleetWise, which makes it easier to collect, transform, and transfer vehicle data to the cloud in near real-time.
 

Amazon’s Response to Economic Headwinds

While Amazon continues to make upgrades to its products and offerings, it also realizes that it faces strong economic headwinds. It is concerned about the continuing impacts of broad-scale inflation, heightened fuel prices, and rising energy costs that have impacted its sales growth as consumers assess their purchasing power and organizations evaluate their technology and advertising spending. During the third quarter, it saw moderating sales growth across many of its businesses, as well as the impact of increased foreign currency headwinds.

To address the growing concerns about rising costs, it is balancing its investments to be more streamlined without compromising its key long-term, strategic bets. It is reevaluating its plans to open warehouses and is working on improving the efficiency of its fulfillment operations. It recently imposed a hiring freeze for corporate and technology roles for its retail division, shut down its telehealth division, and has stopped some experimental projects. It still remains positive about the upcoming holiday season, but given the tempered outlook, it is clearly bracing itself for an economic slowdown.

Amazon’s stock is trading at $90.98 with a market capitalization of $0.92 trillion. It had touched a 52-week high of $188.11 in November last year. It had fallen to a 52-week low of $88.04 earlier this month.

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