Amazon's pandemic-fuelled online shopping bump fades

SEATTLE • Amazon.com emerged as the essential store for homebound shoppers during the coronavirus pandemic, propelling its sales and profits to new highs.

Now, the rush online is slowing as vaccinated consumers peel away from computers and smartphones and revert to old habits like travelling and dining out.

The world's biggest e-commerce retailer on Thursday reported sales and gave a forecast that fell short of expectations.

Shares declined about 7 per cent in extended trading after the results were released. It marked the first time Amazon had missed quarterly sales estimates since 2018.

The company invested billions to operate through the pandemic, while minimising the spread of Covid-19 through its facilities and hiring hundreds of thousands of workers to meet crushing demand.

New chief executive Andy Jassy, who took the helm from founder Jeff Bezos on July 5, has to convince investors that Amazon continues to be a good long-term bet though revenue growth is slowing and the company faces heightened scrutiny from regulators in the United States and Europe, its biggest markets.

"They just don't have the tailwinds they had last year," said Edward D. Jones & Co analyst Brian Yarbrough. "It just becomes the law of large numbers. There's just no way it can be sustained."

Investors overlooked better-than-predicted profits and a strong performance in the quarter from the company's advertising business and Amazon Web Services (AWS) cloud unit.

Instead, they focused on slowing growth for the company's core e-commerce business, which chief financial officer Brian Olsavsky said would continue through the year.

Higher expenses will also linger as Amazon keeps adding capacity and hiring workers to meet demand that has jumped in the past two years, he said.

Some facilities are handling double the package volume they did just two years ago, he added.

And Amazon must compete in the labour market for employees as more and more businesses reopen, which will add to costs.

"I would count on wage pressure for the immediate future," Mr Olsavsky said.

Second-quarter total operating expenses rose 27 per cent to US$105.4 billion (S$142 billion).

Amazon is working to get more of its employees vaccinated and hopes the Delta variant of the virus can be controlled even if that means "people are getting out more and doing other things besides shopping", Mr Olsavsky said.

Revenue will be US$106 billion to US$112 billion in the period ending in September, Amazon said. Operating profit will be US$2.5 billion to US$6 billion.

Analysts, on average, projected US$8.11 billion in profit on sales of US$118.7 billion.

Second-quarter sales increased 27 per cent to US$113.1 billion, missing estimates of US$115 billion.

Profit was US$15.12 a share in the period ended June 30; the average estimate was US$12.28.

Shares fell to a low of US$3,325.06 in extended trading after closing at US$3,599.92. The stock had gained about 11 per cent this year through the close.

Mr Bezos remains executive chairman and the exact nature of his new role is a work in progress.

He has said he wants to focus on new initiatives, which suggests Mr Jassy will oversee the day-to-day of Amazon's business. Mr Jassy previously ran the cloud unit.

AWS revenue jumped 37 per cent in the quarter to US$14.8 billion - the biggest year-on-year sales jump in two years. The company's "other" revenue category, primarily advertising sales, gained 87 per cent to US$7.92 billion. Both units topped analysts' estimates.

Amazon's gains during the pandemic came from adding more Prime members, who pay monthly or annual fees in exchange for shipping discounts and other perks.

Amazon had 153 million Prime members in the US at the end of last month, up 25 per cent from a year earlier, according to Consumer Intelligence Research Partners.

Prime members spend about twice as much on Amazon as non-Prime members.

Despite big e-commerce investments by competitors including Walmart and Target, Amazon remains the unrivalled e-commerce leader in the US, its biggest market.

US shoppers will spend US$367 billion on Amazon this year, up 15.3 per cent from last year, according to eMarketer. Amazon's 40.4 per cent share of all online spending in the US is bigger than its next nine competitors combined.

The company continues to expand its workforce.

It had almost 1.34 million employees worldwide as at June 30, up 52 per cent from a year ago.

BLOOMBERG