Company Expects Revenue Growth of Just 10 to 16% in Q3

Amazon had a pretty good quarter in Q2, according to its earnings report released late last week.

But it failed to hit revenue estimates and predicted much slower growth ahead, sending its stock price down about 7% on the news, where it has remained into this week.

Supply Chain Digest Says...   Unusually, Amazon provided no data relative to its expansion of its fulfillment footprint in Q2. What do you say? Click here to send us your comments   Click here to see reader feedback

Amazon said its revenue in the quarter was up 27% year-over-year to $113.08 billion. That’s a significant slowdown from the second quarter of 2020, when sales jumped 41%. Revenue was up 44% in Q1.

Consensus estimates were for $115.2 billion, a bit above the $113 billion actual.

However, the company once criticized for fast revenue growth with little or negative profit now has learned how to make real money.

Amazon had net income of $7.7 billion dollars, a very respectable 6.8% of revenues, in Q2. That compares with profits of $5.2 billion in Q2 2020, and $8.1 billion (7.7% of sales) in Q1.

But Amazon said growth is going to slow year-over-year in Q3 and perhaps longer over very tough comparisons versus 2020, when sales were rising well over 40% in Q3 and Q4.

For the third quarter, Amazon said it expects to book sales between $106 billion and $112 billion, which would mean growth of 10% to 16% compared to the same period last year. That’s well below the previous consensus estimates of $119.2 billion and a real slowdown by Amazon standards.

Operating income increased to $7.7 billion in the second quarter, compared with $5.8 billion in second quarter 2020. That was also 6.8% of revenues, and down from operating income of 8.2% of revenues in Q1, which was the largest percntage by far in its history.

And Q3 profits are also expected to slow, Amazon said.

Amazon said its operating profit in the third quarter will be between $2.5 billion and $6 billion, a very wide range, for reasons that are not clear.

Amazon CFO Brian Olsavsky said in a call with investors that Amazon is in the midst of a multi-year investment cycle, with heavy spending to expand fulfillment capacity across the country. He added that most of Amazon’s 2021 spend and building openings are planned for the second-half of the year, so that could explain it.

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The Amazon cash flow story was mixed. 

Operating cash flow increased 16% to $59.3 billion for the trailing twelve months, compared with $51.2 billion for the trailing twelve months ended June 30, 2020.

However, free cash flow decreased to just $12.1 billion for the trailing twelve months, compared with $31.9 billion for the trailing twelve months ended in June 2020.

Other Q2 results for Amazon worth noting include:

• Gross margin was 43.3%, up from 42.5% in Q1

• Fulfillment costs, which do not include shipping, were $17.6 billion, up 27.5% versus 2020, just about equal to revenue growth of 27%

• International revenue was up about 36%, to $30.3 billion. However, that was down a bit from $30.6 billion in Q1, and international is right now a breakeven business for Amazon.

• Its AWS web services unit had revenues of $14.8 billion, growing 37%.

• On-line store sales grew just 16% year-over-year, and were flat verus Q1. Sales at physical stores, mostly its Whole Foods unit, were up 11%, but represent only $4.2 billion in revenue.

• Shipping cost rose 30% to $17.7 billion, rising a bit more than the growth in sales of 27%; Amazon a couple of years back stopped providing shipping revenues, making it impossible to understand net shipping costs.

• Unusually, Amazon provided no data relative to its expansion of its fulfillment footprint in Q2, as it normally does.

So there you have it, Amazon’s Q2 results.

Look soon for our annual and very popular Walmart and Amazon by the Numbers feature soon.

What do you think of Amazon's Q2 results? Let us know your thoughts at the Feedback section below.