Amazon Shares Drop 8% as Cautious Consumers Opt for Cheaper Purchases

Amazon's second-quarter online sales growth slowed as cautious consumers opted for cheaper purchases, leading to an 8% share drop. Despite beating profit and cloud computing sales estimates, Amazon's forecast for current-quarter sales fell below Wall Street expectations, disappointing investors.

Amazon Shares Drop 8% as Consumers Opt for Cheaper Goods Despite Strong Cloud Sales Performance

Amazon.com reported a slowdown in online sales growth for the second quarter, noting that cautious consumers were opting for cheaper purchases, which led to an almost 8% drop in shares. This decline occurred despite the company exceeding analyst estimates for second-quarter profit and cloud computing sales. Amazon's shares had gained over 20% this year through the session close on August 1.

Still, investors were disappointed with the company's forecast for current-quarter sales, which fell below Wall Street expectations.

Brian Olsavsky, Amazon's CFO, explained to reporters that consumers continued to be cautious with spending and were looking for deals, with lower-priced products selling briskly. CEO Andy Jassy concurred, stating that customers were trading down on price whenever possible. Amazon's online retail business has faced increased competition from budget retailers like Temu and Shein, which directly offer various goods at low prices from China. These comments mirrored those from companies like Mondelez, PepsiCo, and Kraft, highlighting American consumers' challenges.

Amazon’s online store sales rose 5% in the second quarter to $55.4 billion, compared to a 7% growth in the first quarter. An analyst noted that slowing retail sales growth drove the post-market shares sell-off. However, Charles Rogers, an analyst at M Science, highlighted the positive momentum in cloud growth, a significant aspect of Amazon's business. He mentioned that while the retail aspect weighed on the stock, cloud growth had a clear positive trend.

AWS Revenue Surges 19% as Amazon's Prime Day Shatters Records, Despite Consumer Spending Challenges

In a release announcing the results, according to Reuters, Jassy emphasized the continued re-acceleration in AWS growth. Amazon Web Services (AWS), Amazon's cloud business, reported a 19% increase in revenue to $26.3 billion for the second quarter, surpassing market estimates.

Olsavsky noted that predicting third-quarter performance took a lot of work due to events like the presidential election and the Olympics in Paris distracting consumers. However, he mentioned that Amazon’s Prime Day in July was a major success, being its “biggest ever.” This successful event is a testament to Amazon's ability to attract and engage consumers, though specifics were not provided.

Kraft recently stated that it must offer more entry-level price points and expand its range of Oscar Mayer products at dollar stores to cater to value-seeking shoppers.

Like other big tech companies, Amazon is increasing capital expenditures to invest in AI infrastructure and development. Olsavsky reported that spending in the first six months of this year was about $30.5 billion, suggesting about $16.5 billion was spent in the second quarter. Amazon is developing its large language models and has introduced a chatbot named Rufus to help customers with purchasing decisions. Google's parent company, Alphabet, and Microsoft recently cautioned investors about elevated yearly expenses to support AI software and services development.

For the third quarter, Amazon expects revenue between $154.0 billion and $158.5 billion, compared with analysts' average estimate of $158.24 billion. The company also missed estimates for advertising sales, a closely watched metric, reporting $12.8 billion in the quarter against an average estimate of $13 billion. Despite this, Olsavsky expressed satisfaction with the advertising results, noting a 20% growth in sales for the quarter.