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Amazon earnings preview: Analysts watching how inflation, client spend impression income

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An Amazon delivery van parked in front of the company’s headquarters and Amazon Go store in Seattle. July 2021. (GeekWire Photo / Kurt Schlosser)

Amazon reports second quarter earnings Thursday afternoon and analysts will be keeping a close eye on how ongoing inflation is affecting the company’s top and bottom lines.

Revenue is expected at $119 billion, up 5% year-over-year, with earnings per share of $0.14, down from $15.12.

Amazon CEO Andy Jassy cited inflationary and supply chain pressure in the company’s first quarter earnings report, which saw its slowest growth rate for revenue in more than two decades. Shares fell more than 10% following Q1 earnings in April.

Amazon may report lower-than-expected revenue for Q2 due to macroeconomic challenges, according to analysts with Wedbush.

“While rising inflation can benefit Amazon’s retail business by resulting in higher pricing and marketplace fees (ranging from 8 – 15%), we believe that the sheer magnitude of inflation in Q2 directly led to lower consumer discretionary spending,” Wedbush analysts wrote in a report this week. They said revenues not related to Amazon Web Services could decline by 2.5 – 5% year-over-year.

Others remain optimistic about the company’s short and long-term prospects. Analysts with JPMorgan Chase said in a report that Amazon would still gain share in a recessionary environment “given low prices, wide selection, and fast delivery.” It added that the company’s cloud business, Amazon Web Services, may provide a boost.

“Despite tougher macro conditions, we continue to expect AMZN to have accelerating growth in the back half and to show margin progress as it works through elevated costs, while AWS should prove more resilient — though not immune — to broader slowdown,” said JPMorgan analysts.

Shopify said Tuesday it was cutting 10% of its workforce as revenue growth slows. The e-commerce giant and Amazon competitor predicted the recent pandemic-driven e-commerce surge would continue, but that bet didn’t pay off, The Wall Street Journal reported.

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Amazon’s stock fell more than 4% in after-hours trading Monday after retail rival Walmart lowered profit guidance and blamed inflation.

Amazon cited inflation as it announced an increase for the cost of a Prime membership in Europe this week. It bumped Prime membership fees by $20 in the U.S. in February.

Amazon is also dealing with rising labor costs. In September the company said it was raising average hourly U.S. wages to $18 an hour for warehouse workers. Amazon said in February that it would more than double max base pay for corporate and tech employees to $350,000. It has not announced hiring freezes or slowdowns like other tech giants such as Apple and Google.

Amazon employs 1.6 million people worldwide. It hired 337,000 people in 2021.

Earlier this year Amazon announced a 5% fuel and inflation surcharge for sellers on its marketplace who use the company’s shipping services, due to an unexpected increase in costs.

Shares of Amazon are down nearly 30% this year amid the broader downturn for tech stocks. The company’s 20-for-1 stock split went into effect June 6; shares initially rose more than 5% but are now trading at about the same price, around $120/share.

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