The latest results from Amazon and Apple shook up tech stocks in the US following Amazon’s first reported loss since 2015 of $3.8 billion.
Online retail sales declined 3% in light of sliding consumer interest in online shopping as inflation rates started to burn a hole in consumer wallets.
The e-commerce giant added that a significant portion of its loss was linked to its investment in electric car manufacturer Rivian.
Amazon commented that it estimated a sales growth as low as 3% in the next several months, representing a severe downhill slide from its booming pandemic heights.
Amazon Inflation Concerns
“Amazon’s update was worrying as it not only put the company into its first quarterly loss since 2015, but it also painted a gloomy picture for the retail market in general,” said AJ Bell investment director Russ Mould.
Analysts highlighted the knock-on effect of rising inflationary pressures on consumer spending habits, with customers likely to keep a tighter grip on their wallets going into the remainder of the year.
“A drop in online retail sales no doubt reflects a more cost-conscious consumer. Whereas during the pandemic people were happy to browse and click with little care about the cost, now purchases will be more considered,” said Mould.
“It’s far too early to say we’ve lost our love of online shopping. It’s merely that people are more hesitant when it comes to pressing the ‘buy’ button after filling up their virtual basket.”
The company mentioned a 6% decline in international business, alongside a growth in expenses, with $2 billion in costs from inflation delivering a blow to Amazon’s results.
The retail firm raised its prices for Amazon Prime shipping and video in a bid to offset its spiking costs, including a rise in staff pay and climbing fuel prices bringing an increase in delivery expenses.
“Amazon has put up the price of its Prime delivery and streaming service in the US to try and get additional income to offset rising costs across the group including staff and delivery. That’s likely to be replicated in other parts of the world,” said Mould.
Amazon Remains Optimistic
“We’ve also seen Amazon increase fees for merchants using its platform. Yet Amazon has never been one to worry too much about short-term profit or loss,” continued Mould.
“It has an eye on the longer-term prize and would always prioritise user experience and value for money over jacking up prices big time simply to give its earnings as big a boost as possible.”
The group also reported a 37% increase in its Amazon Web Services cloud computing division and a 23% uptick advertising, with overall sales rising 7% year-on-year to $116.4 billion resulting from the company’s strong Amazon Web Services development.
Apple Profits Rise
Apple highlighted some positive news, with a sales growth of 9% year-on-year to $97.3 billion, with a profits spike of over 10% to $25 billion.
“Apple appears to be surviving the cost-of-living crisis better than most,” said Mould.
“Its latest update shows strong sales and, importantly, more people hooked into its network of services such as streaming and digital storage.”
China supply concerns
However, the iPhone developer issued dire warnings that its sales could suffer an $8 billion hit from supply chain problems as a result of Chinese lockdowns. The country’s zero-Covid policy sent Chinese capital Beijing into lockdown, flinging the markets into turbulence as investor fears surged.
“We are not immune to these challenges but we have great confidence in our teams, in our products and service and in our strategy,” said Apple CEO Tim Cook.
The company said the majority of its chip operations were based in Shanghai, where cases have fallen and most of the group’s operations had kicked off again.
“Almost all of [the] affected final assembly factories have now restarted,” said Cook.
Covid-19 lockdown remained a concern for Apple, and Cook confirmed that he was more concerned about factory disruptions than a decrease in consumer spending over the coming months.
“In the earnings call with investors, chief executive Tim Cook said he was more focused on supply rather than demand,” said Mould.
“Covid-related disruption in China and industry-wide chip shortages present a risk that Apple cannot create enough products to meet demand.”
“That might not be such an issue if demand weakens in line with many other parts of the retail sector, particularly as big-ticket items like tablets are tough purchase decisions to make if you’re under financial pressure.”