Why is the Amazon share price sliding?

Posted: 29 April 2022 12:51 pm
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Shares in the technology giant have fallen 14% in the last 6 months, continuing to trend down today.

Shares in US ecommerce giant Amazon.com (NASDAQ: AMZN) have slid 9% to US$2,631.99 in after-hours trading on Wall Street, a result which if matched in normal market trading hours on Friday will wipe out more than US$132 billion from the company's market value.

What is weighing on the Amazon stock price?

Even though Amazon shares rose 4.6% in normal trading hours on Thursday amid a rebound in technology stocks, the post-close slide came after the company announced its first quarterly loss since 2015 as sales slowed and costs rose.

The tech giant said revenues in the March quarter grew just 7% to $116.4 billion, compared to a 44% jump in the same period last year. It reported a net loss of $3.8 billion for the quarter compared with a profit of $8.1 billion for the same period a year ago.

The biggest share of the blame for the loss was attributed to the company's investment in upcoming electric vehicle maker Rivian. Rivian shares lost over half their value in the first quarter of 2022, forcing Amazon to take a $7.6 billion hit on its nearly 20% stake in the EV company.

Rivian, a key rival of Tesla (NASDAQ: TSLA) last month said it expects to produce just 25,000 electric trucks and SUVs this year, half of the number forecast to investors last year as part of its IPO roadshow, as it battles through global supply chain constraints and internal production snags.

Retail woes

But the world's biggest retail platform is also seeing sluggishness in its core businesses, with the March quarter seeing the slowest quarterly revenue growth since 2001.

Amazon was one of the biggest winners of the pandemic, recording huge jumps in sales as consumers moved to shopping online and businesses turned to its cloud computing unit, Amazon Web Services (AWS), to manage their operations.

At the same time, Australian rival Kogan (KGN) is down more than 13% at the time of writing, also off weakening demand for its products following a COVID-19 surge.

The downside for both online retailers is that as vaccination rates increase, consumers are heading back to stores in person. Surveys have indicated in-store shopping has jumped while online sales are on the decline.

Amazon is simultaneously facing cost pressure as its US employees push to unionise and negotiate higher wages and benefits.

Other recent challenges include rising inflation, higher fuel costs, global supply chain constraints and the ongoing pandemic. To offset some of the costs, Amazon this month hiked prices for its US sellers by 5%. Last quarter, Amazon lifted prices for its Prime membership for the first time in 4 years.

"The pandemic and subsequent war in Ukraine have brought unusual growth and challenges," Amazon CEO Andy Jassy said in a statement, adding that the company is focused on offsetting costs in its fulfilment network with staffing and warehousing capacity now at normal levels.

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