Amazon (NASDAQ:AMZN) reported third-quarter earnings after the market closed on Thursday, Oct. 28. The results disappointed investors as its costs are rising rapidly, and sales are decelerating from the rapid growth rates of the pandemic’s height.
A slew of difficulties are now presenting themselves as Amazon tries to run its massive business. Supply-chain disruptions are raising costs for materials and labor. To make matters worse, employees are asking for significantly higher wages because of on-the-job risks and a growing labor shortage.
Amazon hires 133,000 employees ahead of the peak shopping season
Overall, Amazon reported net sales of $110.8 billion for the quarter, a 15% increase from the year-ago period. This quarterly growth rate is actually the lowest dating back to 2015. The deceleration can be attributed to reopening economies and folks having more shopping options. Further, Amazon is comparing revenue to last year’s higher-than-usual levels.
Before the pandemic’s onset, the company had never posted a $100 billion quarter — and Q3 was its fourth consecutive $100 billion quarter. At the same time, Amazon hired 133,000 employees in Q3 to reach a total of 1.468 million. That’s 342,000 more than it had at the same time last year. It’s impressive that Amazon has managed to hire so many employees during a time when businesses everywhere are reporting labor shortages.
The company has decided it will pay whatever it takes to sustain the customer experience. However, all the added labor is weighing on profits. Amazon reported an operating income of $4.9 billion in Q3 — $1.3 billion lower than the same quarter last year — even as it increased sales by 15%. And the company is finding it difficult to hire enough staff to maintain sales at over $100 billion per quarter.
Amazon CEO Andy Jasser commented on the matter in the company’s Q3 earnings release: “In the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs — all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”
Investors are concerned about sliding sales and rising costs
Indeed, the pain is expected to spill over until at least the fourth quarter when the company is forecasting even slower revenue growth of 4% and 12%. And operating profit is expected to fall from last years’ $6.9 billion to somewhere between $0 and $3 billion.
It’s no surprise then that investors were disappointed — the stock was down 4% after the earnings release — and there is no telling for how long the coronavirus pandemic and its lingering effects will harm Amazon’s operating profit. Yet shareholders can take comfort in knowing that Amazon’s aggressive spending and customer-friendly policies will likely win sales from competitors during the peak holiday shopping season.
