What happened
Amazon.com‘s stock price (AMZN -14.05%) plunged 14% on Friday, as concerns regarding the online retail titan’s slowing growth and rising costs drove many investors to sell their shares.
So what
Amazon’s revenue rose 7% year over year to $116.4 billion in the first quarter. That’s down from 9% growth in the fourth quarter of 2021 and a staggering 44% increase in the prior-year period.
Amazon’s pace of expansion has decelerated as the economy has reopened. A lifting of coronavirus-related restrictions in the U.S. and many other countries means more people are shopping inside traditional retail stores once again. E-commerce growth, in turn, has slowed. Online retail sales in the U.S. fell 3.3% year over year in March, according to digital payments leader Mastercard.
People are returning to stores and shopping less online. Image source: Getty Images.
At the same time, inflation and supply chain disruptions are driving up Amazon’s costs. Amazon is boosting wages to attract and retain enough workers amid a tight labor market. Soaring energy and shipping prices are also denting its profitability.
These challenges contributed to a greater than 58% decline in Amazon’s operating income, to $3.7 billion.
Now what
Amazon’s growth is likely to decelerate further in the second quarter. Management expects revenue to increase by 3% and 7% year over year to between $116 billion and $121 billion. Additionally, the company warned investors that it could generate an operating loss of as much as $1 billion, as it battles cost pressures.
Still, there were bright spots in Amazon’s report. Most notably, Amazon Web Services continues to grow at an impressive clip. AWS’ revenue jumped 37% to $18.4 billion, while its operating profits surged 57% to $6.5 billion. The computing infrastructure juggernaut should help to fuel Amazon’s long-term expansion, as businesses shift more of their operations online in the coming years.