- Rigid customers and high AI investment are weighing on Amazon
Amazon shoppers are becoming more frugal, which is posing a challenge for the world's largest online retailer. Meanwhile, the company wants to focus on multi-billion dollar investments in Artificial Intelligence and put profit growth on the back burner. Investors aren't pleased: Amazon's stock fell more than eight percent in pre-market trading on Friday.
Consumers are increasingly paying attention to price-performance ratios and opting for cheaper products instead of branded ones, Amazon noted when releasing its second-quarter results. This trend is expected to continue in the coming months.
CEO Andy Jassy is now looking at the coming months with caution. Amazon expects revenues between $154 and $158.5 billion for the current quarter. Analysts had expected around $158 billion (approximately $146 billion euros).
Does Amazon need to offer more discounts?
The conservative quarterly outlook and ongoing consumer weakness may confirm pessimists' belief that Amazon needs to offer more discounts to attract customers, wrote RBC analyst Brad Erickson. However, management has stressed that the situation is not deteriorating, but rather that the price level has been low since last year.
In the last quarter, revenue increased by 10% year-on-year to around $148 billion (approximately $137.2 billion euros). More was expected on the market. Net income in the second quarter jumped from $6.75 billion in the previous year's quarter to nearly $13.5 billion.
Cloud business grows stronger than expected
At the same time, the company exceeded expectations with the growth of its important cloud division AWS. Its revenues increased by 19% to $26.3 billion. Analysts had expected around $26 billion.
Amazon also wants to benefit from the increased demand for computing power for AI applications in this business. After releasing the quarterly results, CFO Brian Olsavsky said Amazon had invested a total of $30.5 billion in the first half of the year, including expenses for AWS data centers. The manager plans to spend even more in the second half of the year. Amazon sees a high demand for AI applications.
In an attempt to appease unhappy investors, some might argue that Amazon should consider offering more discounts ['Other']. However, the company's management maintains that the current pricing strategy isn't a reflection of deteriorating sales, but rather a continuation of last year's low price level ['Other'].
