© Reuters. FILE PHOTO: Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City, January 29, 2016. REUTERS/Mike Segar/File Photo
By Jeffrey Dastin and Nivedita Balu
(Reuters) -Amazon.com Inc on Thursday said sales growth would decelerate in the third quarter as customers leave their homes more, a slow start to the reign of CEO Andy Jassy as investors weigh if he can steer the retailer as deftly as Jeff Bezos did for 27 years.
Shares fell 5% in after-hours trade.
Last year, many consumers were at home due to the COVID-19 pandemic, making for a tough comparison this quarter, said Chief Financial Officer Brian Olsavsky on a call with reporters. In addition, customers are going out more and doing less online shopping.
The company is working to get employees vaccinated but did not announce any mandates. Amazon (NASDAQ:) has not made any assumptions about rising COVID cases globally from the more contagious Delta variant but hopes the virus is eliminated and the economy continues to come back.
The top job Jassy inherited on July 5 has never been bigger and more complex. Last quarter Amazon announced a deal to buy the film studio MGM for $8.5 billion, expanding in Hollywood at the same time as it is running a grocery chain, building a healthcare business and facing scrutiny from regulators worldwide.
During the COVID-19 pandemic, shoppers turned to Amazon while brick-and-mortar stores closed. Amazon posted record profits, drew more than 200 million Prime loyalty subscribers, and recruited over 500,000 workers to keep up with surging demand.
Now, the company’s breakneck growth is starting to subside. Revenue climbed 27% to $113 billion for the second quarter ended June 30, shy of analysts’ average estimate of $115 billion, according to IBES data from Refinitiv. For the third quarter, Amazon expects sales will grow at most 16%.
The world’s biggest online retailer had moved its annual marketing blitz, Prime Day, to June this year, hoping to peddle more goods before shoppers left town on summer vacations. While it said the event was the biggest two-day sales period ever for merchants on its platform, analysts have witnessed signs of slowing demand.
North America, Amazon’s largest market, saw sales increase only 22% in the second quarter, versus 43% in the same period a year earlier.
Amazon Web Services was a bright spot, however. The cloud computing division that Jassy formerly ran grew revenue 37% to $14.8 billion, ahead of estimates of more than $14.1 billion. Among the deals it inked in the just-ended quarter was an agreement with Canada’s BMO Financial Group.
Profit rose 48% to $7.8 billion, the second-largest quarterly result Amazon ever announced.
Still, enormous challenges come with Amazon’s size.
Costs continue to rise, not just from the $200 million in extra stock Amazon plans to pay Jassy over the next 10 years. The company has offered an average $17 in hourly wages – more than double the U.S. minimum – plus signing bonuses to attract 75,000 workers during a labor shortage.
It has said it planned to hike pay for over half a million employees, costing more than $1 billion, and like other companies, it is facing clogged ports and other disruptions to the transportation supply chain.
The No.2 U.S. employer grappled with workplace tumult as well. Its warehouse in Bessemer, Alabama, this winter became a rallying point for organized labor, which wanted to form Amazon’s first U.S. union and inspire similar efforts across the country. Amazon is awaiting a decision on whether a U.S. National Labor Board director will overturn its landslide victory and call for another union election.
Following the April vote count, Bezos said he aimed to make Amazon a better place to work. It is unclear how he will govern from the sidelines in the role of executive chair of Amazon’s board.
Amazon said it expects operating income for the current quarter to be between $2.5 billion and $6.0 billion, which assumes $1 billion in costs related to COVID-19.