Just a day after the US tech sector hit a 16-month low, trillion-dollar titans Amazon.com Inc (NASDAQ:AMZN) and Apple Inc (NASDAQ:AAPL) did not fully reassure investors with their numbers from the past quarter.
In fact, Amazon fell well short of expectations, with a first quarterly net loss since 2015, of US$3.8bn, as operating profits fell for the third quarter in a row, with online sales down 3% and shipping costs revved up 14%.
“The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” said chief executive Andy Jassy.
He said as the group is “squarely focused on improving productivity and cost efficiencies” in its warehouses and delivery network, which he admitted “may take some time, particularly as we work through ongoing inflationary and supply chain pressures”.
“We’ve also seen Amazon increase fees for merchants using its platform.
Inflation added US$6bn of incremental costs in the quarter compared to a year ago, though management expects this to decrease in subsequent quarters.
“Inflation increasingly looks like a tough beast for Amazon, which not only likes to keep its prices low but has excessive burn of energy-intensive fulfilment,” said UBS in a note this morning as it cut its price target on the online shop to US$4,185 fromUS$4,550.
Following the after-hours earnings release, Amazon’s stock price at one point dropped more than 24% to around US$2,200, before levelling off to an 8% decline to just under US$2,644.
While there were negatives, including the risk that other costs “pop up around the corner”, including from staff unionisation, UBS does fell Amazon shares “screen very attractive on valuation”, trading at 50 times 2023 earnings per share, reiterating their ‘buy’ recommendation.
Indeed, although the online shopping update was “worrying” for the company and paints “a gloomy picture for the retail market in general”, the wider Amazon group, namely the advertising and cloud computing segments, were firing on all cylinders.
“Whereas during the pandemic people were happy to browse and click with little care about the cost, now purchases will be more considered,” said analysts at AJ Bell. “It's far too early to say we’ve lost our love of online shopping. It’s merely that people are more hesitant when it comes to pressing the ‘buy’ button after filling up their virtual basket.”
But they stressed it was important to remember the other parts of its business are doing well.
“Amazon has never been one to worry too much about short-term profit or loss. It has an eye on the longer-term prize and would always prioritise user experience and value for money over jacking up prices big time simply to give its earnings as big a boost as possible.”
As for Apple, it beat expectations with strong sales, margins and EP, thanks to strength in iPhone and Macs.
While the quarter was impressive, chief executive Tim Cook said he was more focused on supply rather than demand and the UBS analysts said the negative impact from Covid lockdowns and silicon shortages will be the key focus for investors.
Cook and co noted they expect a headwind of between US$4bn and US$8bn in the current quarter that will hit the entire product portfolio as supply remains insufficient to meet demand.
While the outlook is disappointing “Apple's value proposition remains unchanged as strong iPhone, Mac, and iPad demand in March lend credence to the fact that supply is the gating issue as iPhone demand is likely above normal seasonal patterns”, UBS added.
Despite the hiccup, the analysts expect Apple shares “to continue to outperform the broader market as April through Sept is typically a seasonal period where shares outperform the market ahead of an iPhone launch”.
They reiterated a ‘buy’ rating and US$185 price target.