Amazon shares climbed more than 12% in extended trading on Thursday after the company reported better-than-expected second-quarter revenue and gave an optimistic outlook.$Amazon.com(AMZN)$ 
Revenue exceeded expectations and Amazon e-commerce revenue was stable
In the second quarter, Amazon's net sales were $121.234 billion, up 7% from the same period last year, and up 10% excluding exchange rate fluctuations. This exceeded analysts' expectations of $119.528 billion. This data is not as impressive as the previous high growth rate, but it is still much better than what was expected by the market.
Prior to this financial report, everyone had low expectations for Amazon.According to the latest US Department of Commerce retail data released in June, retail sales increased by 1% month-over-month to US $680.6 billion, slightly higher than the market expectation of 0.9% and 8.4% higher than last year.
Due to high inflation, consumers have to pay higher living expenses.Retail sales of gasoline and diesel ranked first among all sectors, with year-over-year increases of 49.1%, followed by grocery stores and restaurants with 15.1% and 13.4% increases, respectively. Sales of electronic equipment for non-essential consumer goods declined by 9.1% year over year.
Additionally, Wal-Mart and Shopify, both of which are involved in the retail industry, have issued early warnings. Wal-Mart lowered its profit guidelines for the second quarter and the whole year again on July 25, citing high inflation and the need to reduce prices and clear inventory as the cause of the steep decline in profits in the first quarter.
Due to the downturn in e-commerce business, Shopify also announced this week that it intends to lay off employees in North America. The stock of Amazon fell as much as 5% on Tuesday following the news that the market believed that its business models were similar to that of its competitor.
However, Amazon's net sales from online stores decreased by 4% from 53.157 billion US dollars in the same period last year, and the impact of exchange rate changes was flat year-over-year.
When compared with traditional supermarkets, Amazon's greatest advantage is its logistics system. In my experience, friends who have studied supermarkets have noticed that companies such as Wal-Mart and Target are reducing their prices to promote their products.It is primarily due to transportation and inventory issues.
Last year, the supply chain crisis was the most commonly discussed issue. Large retailers are concerned about running out of goods to sell, so they have spent a great deal of money on purchasing, among which Wal-Mart, Costco, and Target all charter their own ships to ensure transportation.In light of the delays in the supply chain, the company's orders currently have a delivery time of about eight months, which has led to high inventory levels this year. Retailers has an urgent need to clear its inventory.
In comparison with traditional retailers, Amazon's self-operated mode increases the cost of performance, but it ensures a much faster delivery and inventory management.
Subscription services revenue has increased greatly
Net sales from subscription services were $8.716 billion, up from $7.917 billion in the same period last year10%, excluding the impact of exchange rate changes, it increased by 14% year-on-year.
The income from membership subscriptions is also a valuable source of income in addition to the e-commerce business. There are two aspects to this part of business, one is the number of subscribers, the other is the subscription fee, not to mention the subscription price.
Friends who follow Amazon have likely noticed that Amazon has recently increased its membership fee in many countries due to inflation. Earlier this year, Amazon announced that it would increase its Prime subscription fees in the United States. Amazon has raised its membership fees in Britain, Germany, France, Spain, and Italy since then. As a percentage, the annual subscription fee for Prime has increased the most in France, reaching 43%. The increase in membership fees will inevitably result in an increase in membership income.
Amazon's subscribers are also growing. The largest prime day in history just past brought new subscribers to the company. According to reports, Amazon will hold two prime day promotion activities this year, resulting in two peaks in registration. Furthermore, Amazon will become the exclusive licensing platform for Thursday football night this fall, which is expected to attract millions of NFL fans.
Additionally, Amazon launched a new service (Buy with Prime) in the second quarter, allowing third-party merchants to use Amazon's huge logistics and transportation network to process orders on their own websites. Members of Amazon Prime are able to use payment and shipping information stored in their Amazon accounts to purchase goods on the websites of other retailers. Prime service is not free for seller, and the price will vary according to payment processing, fulfillment, storage and other expenses, which will undoubtedly bring more income.
The cloud service business is steadily growing
A cloud service business from Amazon is also worth keeping an eye on. The net sales of AWS cloud services reached US $19.739 billion, an increase of 33% over US $14.809 billion in the same period last year. Excluding the impact of exchange rate changes, it also increased by 33% year-on-year, which was higher than the US $19.56 billion predicted by Wall Street. .
Amazon's AWS cloud service business has played a crucial role in driving revenue and profit for a long time. Because most of their revenue is derived from subscription contracts, cloud service businesses are more durable and stable than e-commerce businesses.
However, due to the current macroeconomic headwinds, this part of the business will also be affected. As well as subscription contracts, Amazon, Microsoft, and Google are also dependent on customer usage, which may rise or fall depending on their business health. Under the current headwind macro environment, Microsoft's previously released financial report indicates that European and American companies have delayed their investment in IT facilities such as cloud services, and leading cloud service providers, such as Oracle and NetSuite, have begun to offer substantial discounts to gain a greater share of the low-end market. While enterprises are hesitant to invest, the total demand remains relatively stable
A strong dollar slows the growth of profit margins
Amazon's net loss in the second quarter was 2.028 billion US dollars, compared with the net profit of 7.778 billion US dollars in the same period last year; Diluted loss per share was $0.20, compared with diluted earnings per share of $0.76 in the same period last year. Less than analysts expected.
A major contributor to this loss is Rivian, a manufacturer of electric pickup trucks. The company listed on NASDAQ in November 2021 with an issue price of $78, a financing scale of $12 billion, and a market valuation of $66.5 billion. Amazon has invested more than $1.3 billion in Rivian and holds approximately 160 million shares of the company.
Rivian's share price, which reached $172 at its peak, is now only $33. The share price of Rivian plunged 49% in the second quarter, resulting in a loss of $3.9 billion for Amazon, bringing its total investment loss this year to $11.5 billion. Amazon can achieve positive returns this quarter if Rivian's losses are excluded.
In addition to investment losses, Amazon's profit margin is also affected by macroeconomic factors. Currently, the United States is in the process of raising interest rates, and the most significant effect of a strong dollar on Amazon is the impact of an exchange rate. This quarter's revenue growth in North American retail is close to 10%, and the growth rate has begun to recover from its low point last quarter. However, the revenue of international business still decreased by 3% year-on-year. While Amazon has reduced costs and increased efficiency by laying off employees and cutting expenses, there is a possibility that this decline may continue for some time under the influence of a strong dollar.
Overall, Amazon's financial report for the second quarter is still very good, and with a relatively high guidance, it is inevitable that the stock will rise after hours. According to Amazon, its net sales are expected to reach $125 billion to $130 billion in the third quarter of fiscal year 2022, an increase of 13% to 17% year-over-year.
In terms of trend, Amazon's stock price has reached a key point. At present, Amazon's stock price is close to the double bottom form on the graph, which indicates a possible reversal of the trend. When the stock price breaks through the neckline and volume rises, it can be considered a buy signal, with a target price of 160.
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