Abu Dhabi, UAEMonday 27 May 2019

Amazon sparks concerns over rising costs, India growth

Seattle-based company said that sales will be $56bn to $60bn in the first quarter, compared with analysts’ average estimate of $61bn

Amazon predicts first-quarter operating income of $2.3bn to $3.3bn. Reuters
Amazon predicts first-quarter operating income of $2.3bn to $3.3bn. Reuters

Amazon’s shares fell after the e-commerce giant gave a tepid first-quarter sales forecast and raised concerns about rising costs, slowing retail growth and a murky outlook for its business in India.

Sales will be $56 billion to $60bn in the current period, the company said on Thursday, compared with analysts’ average estimate of $61bn. Though fourth-quarter sales and earnings topped analysts’ estimates, growth in the North American retail unit slowed dramatically in the key holiday period, and comments about uncertainty in India sent the stock lower. Shares declined as much as 5.8 per cent.

Amazon’s finance chief Brian Olsavsky tried to reassure investors that the company remains on the right track.

Jeff Bezos, Amazon’s chief executive, has pledged about $5bn to chase growth in India, seeing the world’s second-most populous country as the best frontier for Amazon’s international push. But its grand plans were thrown into chaos after the country implemented new e-commerce regulations, which some analysts believe could cut its growth in the market by as much as half this year.

“That’s wildly concerning,” said Tom Forte, an analyst at DA Davidson. “Think about how damaging it will be to Amazon’s future if India isn’t a big part of it. Up until now, China has been its biggest failure.”

In the fourth quarter (of 2018), overall losses from international operations widened to $642 million, reversing a trend of improving profitability. On a call with reporters, Mr Olsavsky also said headwinds from foreign currency exchange rates are curbing revenue.

However, advertising was a key money-maker - highlighting Amazon’s ability to charge brands and merchants for visibility to its 100 million-plus loyal Prime subscribers, who pay fees in exchange for delivery discounts, movie and music streaming and other perks.

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Shoppers will spend $484bn globally on Amazon this year, up 26 per cent from 2018, and the Seattle-based company will capture more than half of all online spending in the US, according to the researcher EMarketer.

Mr Bezos has been pushing beyond the low-margin business of selling goods online into more profitable categories like cloud computing and advertising. Those profits also help fuel Amazon’s growing devices business, which includes smart-home and connected-car gadgets that operate on Amazon’s voice-activated Alexa platform.

The company predicts first-quarter operating income of $2.3bn to $3.3bn, in line with projections for $2.99bn. Mr Olsavsky also hinted that Amazon’s spending will increase in 2019, emphasising that expenditures in 2018 were light and the company has to keep investing in people and facilities to expand.

Updated: February 1, 2019 03:40 PM

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