Amazon earnings preview: Analysts bullish despite rising costs and inflation

An Amazon Fulfillment Center in Dupont, Wash. (GeekWire Photo / Kevin Lisota)

Update, Thursday afternoon: Amazon stock sinks 10% after Q1 earnings as costs rise amid inflation, supply chain pressure

Amazon is facing rising costs, unionization efforts by warehouse employees, and a tight labor market. But analysts are still bullish about the company’s business.

The Seattle tech giant will report its first quarter earnings Thursday afternoon. Wall Street expects revenue of $116.3 billion, up from $108.5 billion in the year-ago period, and earnings per share of $8.07, down from $15.79.

Amazon earlier this month announced a 5% fuel and inflation surcharge for sellers on its marketplace that use the company’s shipping services due to an unexpected increase in costs, which followed separate fee increases in January, Bloomberg reported.

Still, Michael Pachter, an analyst with WedBush, said that “the same inflationary pressures also likely benefited the company by driving higher product prices across most of its categories, especially groceries.”

That’s why Pachter is expecting revenue and operating income on the high-end of Amazon’s guidance ranges for the first quarter. Wedbush ran an e-commerce survey in March; 78% of respondents reported spending more money on Amazon during pandemic than they typically would have.

“We believe inflation did not result in a material impact to revenue in Q1 due to robust consumer spending,” Pachter said in a report last week.

A report from EdwardJones noted that Amazon’s stock is “attractive” in part due to its cloud and advertising businesses, which help drive profits.

Amazon is also dealing with rising wage costs. In September the company said it was raising average hourly U.S. wages to $18 an hour for warehouse workers. That’s still not enough to appease some employees, as workers at a Staten Island facility earlier this month voted to unionize for the first time in Amazon’s history.

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Amazon announced in February that it is more than doubling max base pay for corporate and tech employees to $350,000.

Supply chain issues and additional shipping expenses are also cutting into profits. During the first quarter Amazon hiked the price of its Prime membership by $20 a year.

“As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron,” Amazon CEO Andy Jassy said in the company’s fourth quarter earnings release.

Amazon’s stock is down nearly 20% this year, part of larger downturn for tech stocks. The company announced a 20-for-1 stock split in March that will go into effect on June 3 and also authorized a $10 billion share-repurchase program.

Update, Thursday afternoon: See how Amazon’s results turned out.

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