What happened?
Amazon.com(AMZN -14.05%) shares fell 14% on Friday as concerns over the online retail giant’s slowing growth and rising expenses prompted many investors to sell their shares.
so what
Amazon’s first-quarter revenue rose 7% year over year to $116.4 billion. That’s less than 9% growth in the fourth quarter of 2021 and a staggering 44% increase in the year-ago period.
Amazon’s pace of expansion has slowed as the economy reopened. A lifting of coronavirus-related restrictions in the US and many other countries means more people are returning to traditional retail outlets. In turn, e-commerce growth has slowed. Online retail sales in the US fell 3.3% year over year in March, according to the digital payments leader MasterCard.
People are returning to stores and shopping online less. Image source: Getty Images.
At the same time, inflation and supply chain disruptions are driving up Amazon’s costs. Amazon is raising wages to attract and retain enough workers in a tight labor market. Rising energy and shipping prices are also hurting profitability.
Those challenges contributed to a more than 58% drop in Amazon’s operating revenue to $3.7 billion.
What now
Amazon’s growth is likely to slow further in the second quarter. Management expects revenue to increase 3% to 7% year over year to $116 billion to $121 billion. Additionally, the company warned investors that it could post an operating loss of up to $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 rate. AWS revenue increased 37% to $18.4 billion, while operating income rose 57% to $6.5 billion. The computing infrastructure juggernaut should help propel Amazon’s long-term expansion as companies move more of their operations online in the coming years.