Amazon Warns of Impact of Trade War, Issues Weaker Guidance
Amazon recently issued a warning about the potential impact of Donald Trump’s global trade war and provided weaker-than-expected guidance for the second quarter. The ecommerce giant, based in Seattle, revealed that it anticipates operating income to fall between $13bn and $17.5bn in the current quarter, compared to $14.7bn in the previous year. This forecast fell short of Wall Street’s expectations of $17.7bn.
In its financial guidance, Amazon highlighted “tariff and trade policies” as factors that could pose risks to its earnings. CEO Andy Jassy assured investors that the company was prepared to weather the storm, having engaged in forward buying of inventory in anticipation of tariffs imposed by the Trump administration on Chinese imports.
Jassy stated that despite the tariffs, there had been no significant impact on demand, and average selling prices had not increased significantly. However, he acknowledged that some sellers may choose to pass on higher costs to consumers. Amazon has been working to negotiate discounts with vendors and mitigate the effects of tariffs, as approximately a quarter of the items it sells are imported from China.
Goldman Sachs analysts projected that the tariffs could potentially reduce Amazon’s operating profits by $5bn-$10bn this year, depending on the outcome of the trade war. This could represent a 6-12% hit on the forecasted $79.2bn in operating profit for the fiscal year.
Amazon also forecasted net sales for the current quarter to range between $159bn and $164bn, with the lower end falling below analysts’ expectations of $161.4bn. Following the announcement, the company’s shares dropped 2.3% in after-hours trading in New York.
Despite these challenges, Amazon reported a 9% year-on-year increase in revenues for the March quarter, reaching $156bn. The company’s online retail division saw a 5% growth in net sales compared to the previous year.
Amazon faced further scrutiny this week as its ultra-low-cost Haul platform came under fire for discussing listing import charges on consumer products, a move similar to its Chinese competitor, Temu. The platform, which ships goods from Chinese warehouses, will be impacted by the removal of tax exemptions for goods valued at less than $800 starting May 2.
In addition to its ecommerce operations, Amazon’s cloud division, Amazon Web Services (AWS), narrowly missed expectations but continued to exhibit strong growth with a 17% increase in sales to $29.3bn. The company also ramped up its capital expenditure, investing $24.3bn in the first quarter with plans to spend $100bn on capex this year, primarily focused on AI initiatives.
Amazon’s advertising business also saw growth, with revenue increasing by 18% to $13.9bn. The company is set to introduce new semiconductor chips and faces data centre capacity constraints due to component shortages.
