Amazon Misses Earnings Estimates as It Grapples With Supply Chain Issues, Labor Challenges

Amazon Misses Earnings Estimates as It Grapples With Supply Chain Issues, Labor Challenges

BY ALEX WEPRIN | HollywoodReporter.Com

Troy Warren for CNT #Business

Profits were nearly cut in half as the company responds to logistics and hiring challenges.

Amazon missed Wall Street targets in income and earnings per share, with the reverberations from the pandemic continuing to impact the company in good ways and bad.

On the one hand, net sales increased 15 percent to more than $110 billion as demand for goods continues to surge, but operating income fell to $4.9 billion from $6.2 billion a year earlier, and net income fell by nearly half to $3.2 billion as the company poured cash into shoring up its supply chain, logistics and hiring.

“We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter — and you can see that during every phase of this pandemic,” said Andy Jassy, Amazon’s CEO, in a statement.

Jassy added that the company expects “to incur several billion dollars of additional costs” this quarter “as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs — all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

On the company’s earnings call, CFO Brian Olsavsky said that the main “capacity constraint” was labor, with the “new and not welcome” labor and supply costs incurring $2 billion in extra costs in Q3 and expected to add $4 billion in added costs in Q4.

On the entertainment side of the business, Olsavsky said that the company increased its content spending by over $1 billion year over year, and the company called out the performance of Cinderella on Prime Video, as well as the upcoming Lord of the Ringsseries and The Boys spinoff.

Olsavsky also said that Prime Video has unexpectedly become one of the company’s main drivers to Amazon Prime when it enters new overseas markets. “Video is a really strong attracter of customers, and it is a driver to Prime,” he said.

The company also mentioned its partnership with The Walt Disney Co. on Alexa’s “Hey Disney” compatibility, which will be available to guests of Disney hotels. Disney was also cited as a key driver for growth in AWS, thanks to the fast growth of Disney+, which is powered in part by AWS tech.

On the music side, the company highlighted its push into podcasts, in particular Jason Bateman, Sean Hayes and Will Arnett’s SmartLess, which it acquired earlier this year.

And Olsavsky also highlighted the company’s advertising business made up a “signifiant majority” of what the company calls “other” revenues, which totaled $925 million in the quarter.

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By Troy Warren

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