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Amazon Earnings Suffer as Growth Slows, Costs Rise
E-commerce and cloud-computing company tries to navigate supply-chain and staffing challenges to maintain growth
Amazon, the nation’s second-largest private employer, has been navigating shifts in the economy in recent months.PHOTO: JEREMY M. LANGE FOR THE WALL STREET JOURNAL
By
Sebastian Herrera
Updated Oct. 28, 2021 6:41 pm ET
Amazon.com Inc. posted lower-than-expected third-quarter sales and signaled that a tight labor market and supply-chain disruptions would weigh on earnings.
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 has slowed while labor and supply-chain shortages make it harder to meet demand. The company says it has spent heavily to build out its fulfillment network.
In its first quarterly earnings report covering a period primarily under new Chief Executive Andy Jassy, who on July 5 succeeded founder Jeff Bezos in the top job at Amazon, AMZN 1.59% the online retailer posted sales of $110.8 billion and generated a profit of $3.2 billion, down from the $6.3 billion the company made during the same period a year earlier. Wall Street expected $111.6 billion in quarterly revenue and profit of $4.6 billion.
In the current 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,” Mr. Jassy said.
For the fourth quarter, the company projects sales between $130 billion and $140 billion, compared with a Wall Street expectation of $142.2 billion. Amazon said operating income in the three months ending Dec. 31 is expected to be between break-even and a $3 billion profit, down from $6.9 billion a year earlier and trailing expectations.
Amazon shares, which closed up 1.59% in Thursday trading, fell 3.8% after the bell with the results.
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 fast clip. Amazon has also seen strong demand for its digital advertising business, which has increasingly competed with Google and Facebook’s powerful ad platforms. Sales for the cloud unit continued to climb sharply, totaling $16.1 billion in the third quarter, up about 39% from a year earlier. Amazon’s unit that primarily includes ad sales grew by 50%.
Apple Inc. on Thursday also warned of supply-chain-related challenges in the current quarter. Other 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.
What America's Supply-Chain Backlog Looks Like Up Close
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California’s Port of Los Angeles is struggling to keep up with the crush of cargo containers arriving at its terminals, creating one of the biggest choke points in the global supply-chain crisis. This exclusive aerial video illustrates the scope of the problem and the complexities of this process. Photo: Thomas C. Miller
Amazon Chief Financial Officer Brian Olsavsky, in a call with reporters Thursday, said the company has had to reroute products to meet demand as it deals with labor and supply-chain issues, which increased costs. He said the company also has seen inconsistent staffing levels in its operations because of the labor shortage.
The company spent $2 billion during the third quarter on extra pay and incentives as well as other constraints related to its supply chain, he said. With the arrival of some goods disrupted, Amazon warehouses for the first time since the start of the pandemic aren’t squeezed for space, he said.
Mr. Olsavsky said labor is the company’s main capacity constraint, calling the development “new and not welcome.” The company, he said, hopes the situation will resolve itself through this quarter going into next year.
“We’ll adapt as we need to, to remain competitive,” Mr. Olsavsky said.
The quarter’s growth also was dented by Amazon’s decision to hold 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 employeesamid 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.
Amazon hired around 133,000 staff in the most recent quarter, mostly for warehouse jobs, Mr. Olsavsky said, swelling the company’s ranks to 1.46 million employees.
Mr. Jassy also said the company has nearly doubled the size of its fulfillment network since the start of the pandemic.
“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.
Mr. Olsavsky said the company also is running promotions to encourage early holiday shopping to ease strains on Amazon’s operations, though some of those steps add costs. “We will get through this period, and then we are committed to getting our cost structure down,” he said.
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