Amazon (NASDAQ: AMZN) Third quarter results were announced after the market closed on Thursday, October 28. The results disappointed investors as its costs are rising rapidly and sales are slowing compared to the rapid growth rates from the height of the pandemic.
A series of difficulties now present themselves as Amazon tries to run its huge business. Supply chain disruptions increase material and labor costs. To make matters worse, employees are asking for significantly higher wages due to job risks and a growing labor shortage.
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Amazon hires 133,000 employees ahead of peak shopping season
Overall, Amazon reported net sales of $ 110.8 billion for the quarter, a 15% increase from the previous year. This quarterly growth rate is actually the lowest since 2015. The deceleration can be attributed to the reopening of economies and people with more options to buy. Additionally, Amazon compares revenue to higher than usual levels from last year.
Before the pandemic began, the company had never recorded a $ 100 billion quarter – and the third quarter was its fourth consecutive $ 100 billion quarter. At the same time, Amazon hired 133,000 employees in the third quarter to reach a total of 1.468 million. This is 342,000 more than at the same time last year. It’s impressive that Amazon has managed to hire so many employees at a time when companies around the world are reporting labor shortages.
The company has decided to pay whatever it takes to maintain the customer experience. However, all the extra work weighs on the profits. Amazon reported third-quarter operating profit of $ 4.9 billion, down $ 1.3 billion from the same quarter last year, even though its sales were up 15%. And the company is struggling to hire enough staff to maintain sales in excess of $ 100 billion per quarter.
Amazon CEO Andy Jasser commented on the issue in the company’s third quarter earnings release: “In the fourth quarter, we expect to incur billions of dollars in additional costs in our consumer business as We are managing labor shortages, rising labor costs, a global supply chain, and increased freight and shipping costs, all while doing whatever it takes to minimize the impact on business. customers and business partners this holiday season. It will cost us dearly in the short term, but it is the right priority for our customers and partners. ”
Investors Worried About Falling Sales and Rising Costs
Indeed, the pain is expected to spread until at least the fourth quarter, when the company expects even slower revenue growth of 4% and 12%. And operating profit is expected to drop from $ 6.9 billion last year to somewhere between $ 0 billion and $ 3 billion.
So it’s no surprise that investors were disappointed – the stock was down 4% after the results were released – and it’s unclear how long the coronavirus pandemic and its lingering effects will hurt earnings at operating Amazon. Still, shareholders can take comfort in knowing that Amazon’s aggressive spending and user-friendly policies are likely to earn sales from its competitors during peak holiday shopping season.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Parkev Tatevosian owns shares in Amazon. The Motley Fool owns shares and recommends Amazon. The Motley Fool recommends the following options: January 2022 long calls at $ 1,920 on Amazon and January 2022 short calls at $ 1,940 on Amazon. The Motley Fool has a disclosure policy.
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