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Amazon Earnings Expected to Suffer as Growth Slows, Labor Costs Rise
E-commerce and cloud-computing company tries to navigate supply-chain and staffing challenges to maintain growth
By Sebastian Herrera
Wall Street Journal
Oct. 28, 2021 5:30 am ET
Amazon. AMZN +1.06% com Inc. is expected to post strong third-quarter sales, though a tight labor market that is driving up employee costs is expected to weigh on its bottom line.
The Seattle-based tech company has been navigating substantial shifts in the economy in recent months. Online sales have surged since the start of the Covid-19 pandemic, boosting Amazon’s profit, but sales growth is expected to slow in the most recent quarter, as labor and supply-chain shortages make it harder to meet demand.
Amazon is set to post third-quarter earnings after markets close Thursday. The quarterly report covers a period primarily under new Chief Executive Andy Jassy, who on July 5 succeeded founder Jeff Bezos in the top job. Analysts polled by FactSet on average predict $111.6 billion in quarterly revenue and per-share earnings of $8.90, down from the $12.37 a share Amazon made during the same period a year earlier. The company in July said it expected third-quarter sales between $106 billion and $112 billion.
Amazon’s cloud-computing business, which offers server capacity and software tools and generates a significant portion of the company’s operating profit, has continued to grow at a high clip. Amazon has also seen strong demand for its digital advertising business, which has increasingly competed with Google’s and Facebook’s powerful ad platforms.
Amazon’s technology peers showed robust results this week. Microsoft Corp. , the No. 2 in the cloud behind Amazon, on Tuesday reported a 48% jump in quarterly profit to $20.5 billion. Alphabet Inc.’s Google nearly doubled its profit in its third quarter, as smaller businesses poured money into ads.
During Amazon’s previous earnings report in July, Chief Financial Officer Brian Olsavsky stressed that the company’s coming financial performances would run into tough comparisons after the previous year’s pandemic-fueled success. In addition, Amazon held its annual Prime Day sales extravaganza during its second quarter, taking away the revenue boost from the event that has typically been held during its third quarter.
The nation’s second-largest private employer has said it plans to hire about 275,000 permanent and seasonal employees in the face of a tight labor market, partly to deal with the anticipated online holiday shopping surge. To help attract and retain staff, Amazon raised wages, now averaging a little over $18 an hour, and has handed out bonuses of $3,000 in some cases. The online retailer also recently introduced a plan to pay for the tuition of its workers.
“Up and down the supply chain, costs are increasing, and Amazon isn’t immune,” said Andrew Lipsman, principal analyst at market research firm Insider Intelligence. “But they are reaping some of the benefits now in the investments they made in logistics a couple of years ago.”
To help make good on orders, Amazon this week said it would use more ports and has doubled container processing capacity. The company has also expanded the fleet of planes it uses to ferry packages and taken other steps to meet demand.
Amazon heads into its last quarter also facing increased tension with its workforce.
The National Labor Relations Board said this week a group of Amazon employees in New York had shown enough worker interest for a potential union election. The fledgling group, which calls itself Amazon Labor Union, has campaigned across four Staten Island company facilities that organizers say employ roughly 7,000 workers. Amazon is expected to contest the group’s proposed bargaining unit.
The case in New York represents the second formal U.S.-based union push at Amazon in the past year. Workers at an Amazon facility in Bessemer, Ala., earlier this year voted against joining the Retail, Wholesale and Department Store Union, or RWDSU.
No Amazon employee in the U.S. is represented by a union. Amazon, which has long opposed unions, has maintained that it already provides the benefits unions ask for and prefers to negotiate with workers directly.
Write to Sebastian Herrera at Sebastian.Herrera@wsj.com
Amazon Earnings Expected to Suffer as Growth Slows, Labor Costs Rise - WSJ |
