Amazon jumps on revenue beat and rosy guidance for third quarter

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.

Here’s how the company did:

• EPS: Loss of 20 cents
• Revenue: $121.23 billion vs. $119.09 billion expected, according to Refinitiv

Here’s how other key Amazon segments did during the quarter:

• Amazon Web Services: $19.7 billion vs. $19.56 billion expected, according to StreetAccount
• Advertising: $8.76 billion vs. $8.65 billion expected, according to StreetAccount

Revenue growth of 7% in the second quarter topped estimates, bucking the trend among its tech peers, which have all reported disappointing results.

Amazon said it expects to post third-quarter revenue between $125 billion and $130 billion, representing growth of 13% to 17%. Analysts were expecting sales of $126.4 billion, according to Refinitiv.

Amazon has been contending with higher costs, as pandemic-driven expansion left the company with an overhang of too many workers and too much warehouse capacity.

“Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” CEO Andy Jassy said in a statement.

Amazon shaved its headcount by 99,000 people to 1.52 million employees as of the end of the second quarter.

Amazon recorded a $3.9 billion loss on its Rivian investment after shares of the electric vehicle maker plunged 49% in the second quarter. That brings its total loss on the investment this year to $11.5 billion.

Because of the Rivian writedown, Amazon had an overall loss of $2 billion in the quarter. Analysts’ EPS estimates varied dramatically, making it difficult to compare actual results to a consensus number.

Amazon’s core e-commerce business continues to suffer as online sales are no longer flourishing like they were at the height of the Covid-19 pandemic. The company’s online stores segment declined 4% year over year. Physical store sales continued to rebound from the year-ago period, growing 17%.

Amazon’s ad business is a bright spot in an otherwise gloomy quarter for online advertising, and shows the company is picking up share in one of its fastest-growing businesses.

Ad revenue climbed 18% in the period. Facebook, meanwhile, recorded its first ever drop in revenue this week, and forecast another decline for the third quarter. At Alphabet, advertising growth slowed to 12%, and YouTube showed a dramatic deceleration to 4.8% from 84% a year earlier.

Among the other top tech companies, Microsoft also reported disappointing results this week. Apple beat on the top and bottom lines, lifting the stock in after-hours trading.

Amazon’s cloud segment continues to hum along. Sales at Amazon Web Services jumped 33% from a year earlier to $19.74 billion, above the $19.56 billion projected by Wall Street.

Operating income, which excludes the investment-related loss, shrank to $3.3 billion from $7.7 billion a year earlier.

AWS generated operating income of $5.7 billion, accounting for all of Amazon’s profit plus some in the period.

The upbeat results could also help improve the mood around Jassy, who replaced Jeff Bezos as CEO a little over a year ago. Jassy’s first year on the job has been marred by challenges, including an ongoing labor battle, the market downturn, growing regulatory pressure and an exodus of top talent.

He’s also under pressure to show he can return Amazon’s core retail business to the growth investors have become accustomed to, a difficult task given the many macro pressures the company faces, such as soaring inflation and slowing consumer discretionary spending.