Amazon share price drops on results as electric car investment weighs on earnings

Amazon reports quarter one (Q1) 2022 loss

Amazon has reported first quarter (Q1) 2022 results which have fallen short of market expectations. A summary of the financial results are as follows:

• Revenue increased to $116.44 billion, +7.3% year on year (YoY)
• Net loss of $3.8 billion compares with net income of $8.1 billion in the prior year’s comparative period
• A diluted loss per share of $7.56 per diluted share compares with earnings per share (EPS) of $15.79 in the prior year’s comparative period
• Negative free cash flow of $18.6 billion for the trailing twelve months (prior year’s comparative was a free cash inflow of $26.4 billion)

Amazon inc. issue weak forward guidance

Amazon Inc. has provided the following guidance in terms of the outlook for the Q2 of 2022:

• Net sales expected to be between $116.0 billion and $121.0 billion +3% to 7% (YoY), expectant of unfavourable impact of exchange rates
• Operating loss of between $1.0 billion and $3.0 billion expected which compares with operating income of $7.7 billion in Q2 2021
• This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.

Comments on results and guidance

Q1 2022 results have shown an unexpectedly weak quarter for the group. The prior year’s Covid-19 pandemic supported earnings in Q1 2022 providing a high base of comparison, but the extent of lost earnings in the Q1 2022 have underperformed even the softest forecasts. The net loss reported for the period is mostly attributed to a pre-tax valuation loss of $7.6 billion recorded for the group’s investment in Rivian Automotive. Rivian represents Amazon’s investment into the electric vehicle manufacturing space. The Rivian share price has fallen around 50% over the reporting quarter.

Adding to the soft first quarter is the negative outlook for the group’s current (Q2 2022) quarter, where an operating loss is again expected. The Rivian investment is likely to weigh further as the share price is currently down another 40% odd since 1 of April.

As we emerge out of the pandemic the ecommerce space is feeling a pinch from a resumption of bricks and mortar retail appetite. Amazon has and is continuing to face pressure on its business through inflation (stemming from labour and logistic / fuels costs) as well as the Ukraine / Russia war and supply chain bottlenecks.

Amazon Inc.

The share price of Amazon Inc. has broken key support at 2720 in afterhours trade following the results release. The long-term trend for the stock remains down as the price continues to trade well below the 200 day simple moving average (SMA). The 20 day SMA is now also crossing the 50 day SMA. This is a suggestion that the short to medium term trend are now also resuming down in line with the longer term trend.

$2460 becomes the initial downside support target from the move lower. Traders who are short might consider using a close above $2720 as a stop loss indication for the trade.

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