Yahoo Finance Live’s Julie Hyman and Brian Sozzi discuss the decline in Amazon stock amid rising costs and supply chain issues.
Video Transcript
BRIAN SOZZI: OK, another FAANG stock reporting after the bell on Thursday was Amazon. The company posted its first quarterly loss since 2015, citing rising costs, supply chain issues, and a stake in EV maker Rivian, as weighing on the quarter. Right now, you're seeing Amazon shares being obliterated, down more than 10% here in the premarket. Amazon stock is the top trending ticker right now on the Yahoo Finance platform, Julie.
And I'm not surprised. And really, the key theme, we started the show, Julie, talking about the PCE Index. A little inflationary, and that continues. Apple, inflationary cost in its supply chain. And that was a key topic for Amazon. $6 billion inflation and supply chain hit, and its most recent quarter guided to another $4 billion inflation supply chain hit in this current quarter. And the Street doesn't like any of this.
JULIE HYMAN: I think we have now a pretty clear spectrum for these large cap tech disappointments, right? On the one end of the spectrum, you have a Netflix, where the stock was down almost 50% going into the report. You had a disappointing report, and you have a dramatic rerating of the stock and of investors' perception of the company's core business and growth prospects. You have Apple, on the other hand, which disappointed, is having some trouble in China with supply chain, but there seems to be fundamental confidence. That stock's down a little bit.
And then you have Amazon somewhere in the middle, right, where the company is grappling with supply chain issues, with inflation, but it's not as bad as a Netflix where you have to rethink the whole business. There's a little more uncertainty about how they're going to manage this going forward, but it's not as bad. So, to me, that's kind of how I'm thinking about this spectrum of some of these tech companies and tech disappointments. And to your point, costs are a big issue for Amazon here. Their total operating expenses in the quarter? Remarkable here, $112.7 billion, including about $20 billion for fulfillment related costs alone.
So, when you're looking at those kinds of costs, we've seen Amazon pull levers before to become profitable and unprofitable. Usually, though, Sozz, when we've seen it in the past, Amazon is choosing, at times, to be unprofitable or less profitable because it's investing in the business. This time, it felt like less of a choice, perhaps, than in prior periods of time for the company.
BRIAN SOZZI: No, that's a great take, Julie. And look what we've seen this week from these big cap tech players. I think you've seen Mark Zuckerberg early in the week come out here and pull back on how much he plans to spend this year because growth is slowing. Check, done there. We heard, I think, the same tone on that Amazon earnings call as well. While they're going to see a $4 billion inflationary hit this quarter, they are also acknowledging that their business is not growing at the same pace it was during the pandemic. Hence, they're going to listen likely to that institutional shareholder concern about their margins and start to pull back a little bit on expenses.
I will add this, too. The Street is looking for a big Prime Day. Prime Day will be held in July of this year. I've seen some estimates out there in the Street. People are looking for over $4 billion in sales for Prime Day, so expectations remain high for Amazon in that regard. And then, Julie, we were talking a little bit about this in the morning meeting. You have to wonder if Amazon took enough price increases for Amazon Prime. Those price increases kicked in earlier in the year, but we all love Amazon Prime. And considering that affinity for this service and the inflation they are seeing, how much more do they need to increase Prime? Now I get dragged on Twitter for it. Nobody wants to pay more for Amazon Prime, but the fact is, this is still probably an undervalued service for Amazon.
JULIE HYMAN: They're not going to raise it more. Certainly not in the short-term.
BRIAN SOZZI: They're going to have to.
JULIE HYMAN: They can't raise-- no, they cannot. They can't-- they're going to have to when? They just raised it $20. They're not going to raise it anymore. I'm going to go-- you know I don't like to make predictions. Amazon Prime is not getting more expensive this year. It's probably not getting more expensive next year either. I'm going to go out on a limb and say that. And that's because, traditionally, Amazon has not put the onus of these costs on its customers. And I don't think they're going to make the choice to do it again after they've already raised it by 20 bucks. That's what I think.
BRIAN SOZZI: I say--
JULIE HYMAN: They are--
BRIAN SOZZI: I say Prime's $200 middle of next year.
JULIE HYMAN: No, what? Now you're just trying to irritate me. There's no chance.
BRIAN SOZZI: Not at all! Well--
JULIE HYMAN: Not a chance.
BRIAN SOZZI: --somebody has to pay for this. Amazon is a public company. They have these users here. They have to get money from somewhere.
JULIE HYMAN: Not a chance. The sellers are going to be paying part of it, by the way, because they're imposing for the first time a 5% fee on sellers, a surcharge to account for some of this. And they're also getting money from some of their other businesses, right? So that's something we should mention as well. Amazon is not just a retailer, as we all know. Ad services were up 25% in the quarter. Amazon Web Services were up 37% to about $18 billion. So you have to think about it as the holistic business as well, that it's not just the retail business.
BRIAN SOZZI: Julie--
JULIE HYMAN: $200, come on.
BRIAN SOZZI: Are we fighting? Are we fighting on live TV?
JULIE HYMAN: Yeah, we're fighting. I'm not talking to you.
BRIAN SOZZI: All right, all right, fine. I didn't want to fight with you. It's Friday. I don't want to.
JULIE HYMAN: Well, I guess I'm going to have to talk to you because we have to do thing number three.
