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Dampened Anticipations Surrounding Amazon amid the Jeff Bezos Succession

Increased costs, underperforming Prime sales, and inflation prompt some experts to adjust their forecasts before the quarterly report of the prominent e-commerce enterprise.

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Increasing expenses, underwhelming Prime sales, and inflation are making some analysts revise their...
Increasing expenses, underwhelming Prime sales, and inflation are making some analysts revise their predictions before the release of the e-commerce behemoth's Q3 financial report.

Dampened Anticipations Surrounding Amazon amid the Jeff Bezos Succession

Amazon's Transformed Retail Strategy Under CEO Andy Jassy Amid Challenging Economy

On Monday, several analysts lowered their sales and profit projections for Amazon ahead of the tech giant's third-quarter earnings report on Thursday. The pessimistic outlook for the e-commerce giant is attributed to rising expenses, weaker-than-expected Prime Day sales, and a tough macroeconomic environment marked by inflation.

Amazon itself seems to be adopting a more conservative stance, reflecting a broader shift in retail strategy under the leadership of CEO Andy Jassy, who succeeded Jeff Bezos last year. MKM Partners Managing Director Rohit Kulkarni suggested this change in a Monday research note. Shlomo Chopp, managing partner at real estate advisory firm Case Property Services, believes that Jassy's approach stands in contrast to the more visionary outlook of Bezos, with a heightened emphasis on operations.

Telsey Advisory Group lowered its expectations for Amazon's sales and profits in both the third and fourth quarters, attributing this to "softer macro trends in the US and international markets, tight consumer spending, and lower-than-anticipated Prime Day sales in 2022." Analyst Joseph Feldman of Telsey Advisory Group expects Amazon's third-quarter sales to rise due to the July Prime Day sales; however, he anticipates that this growth will be less than the 400 basis points he previously estimated. Research from Numerator shows that many Prime Day shoppers prioritized essential purchases during the event, which may have contributed to an average order size that was 23% lower for the second Prime Day sales event held this month compared to July.

Feldman also noted a somewhat lackluster response to the Prime Early Access Sale, which follows the original Prime Day event. These trends, combined with declining discretionary spending, suggest exposure for Amazon as consumers adjust their budgets in response to inflation. Wells Fargo analysts led by Brian Fitzgerald emphasize declines in electronics sales and weakness in apparel and accessories, which could impact Amazon's bottom line.

Amazon is transitioning towards relying more heavily on non-retail operations to generate revenue. MKM analysts report that their communications with Amazon marketplace sellers suggest that the October Prime sales may have been lower than the July sales, but ad spending on Amazon has remained above the industry average. In light of these trends, MKM analysts are adjusting their e-commerce and Amazon marketplace assumptions while leaving their estimates for AWS, subscriptions, and advertising unchanged.

Despite the recent pressures and strategic adjustments, analysts remain optimistic about Amazon's long-term prospects. Telsey's Feldman expects Amazon to continue outperforming the broader retail sector due to continued market share gains stemming from its loyal customer base and small business relationships.

In terms of Amazon's core business philosophy, while both CEOs prioritize innovation and customer satisfaction, Jassy's strategy appears to be more focused on optimizing existing businesses and adapting to current market conditions. Striving for operational excellence and balancing short-term challenges with long-term growth objectives, Jassy's leadership style differs from the expansive and innovative approach that characterized Bezos' tenure. Nonetheless, the company remains committed to maintaining its market dominance and providing customers with exceptional offerings.

  1. Analysts at MKM Partners believe that Amazon's shift in retail strategy, led by CEO Andy Jassy, reflects a heightened emphasis on operations, as reported in a Monday research note.
  2. Telsey Advisory Group suggests that Amazon's sales and profits for both the third and fourth quarters will be lower due to softer trends in the US and international markets, tight consumer spending, and disappointing Prime Day sales in 2022.
  3. Research from Numerator indicates that many Prime Day shoppers prioritized essential purchases during the event, potentially contributing to an average order size that was 23% lower for the second Prime Day sales event this month compared to July.
  4. In light of declining discretionary spending, a lackluster response to the Prime Early Access Sale, and declines in electronics sales, Wells Fargo analysts are concerned about Amazon's bottom line, with weakness in apparel and accessories being particularly notable.
  5. Despite these pressures and strategic adjustments, Telsey's Joseph Feldman remains optimistic about Amazon's long-term prospects, predicting that the company will continue to outperform the broader retail sector due to its loyal customer base and market share gains.

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