Amazon Set to Hold Its Second Prime Day of the Year This Week

Ever since Amazon started its Prime Day in 2015, it has been an annual event that was usually held in July. However, this year, the company is holding a second Prime Day which will begin tomorrow and last for two days.

While announcing Prime Day, Jamil Ghani, vice president of Amazon Prime said, “As we kick off the holiday season, we’re so excited to find new ways to surprise and delight our Amazon Prime members.”

Notably, Prime is a key constituent of Amazon’s ecosystem. It not only brings billions of dollars in subscription revenues every quarter but also helps increase sales on the e-commerce platform. Prime members tend to shop more on Amazon, thanks to the free deliveries.

Amazon raised Prime prices in 2022

Amid rising inflation, Amazon has also raised Prime Subscription prices in North America as well as Europe. However, it continues to make the offering better through the addition of new titles and also offered a one-year free GrubHub subscription to US users. It also completed the acquisition of MGM which has enhanced the library of Prime.

Amid rising streaming competition, it has become imperative for companies to add more, and diverse content to their library.

Peloton partnership

In August, Peloton announced that it would start selling its equipment on Amazon. The struggling home fitness company has also partnered with Dick’s Sporting Goods and is also setting up bikes at 5,400 Hilton hotels in the US as it tries to revive the brand.

Amazon expects Peloton equipment to be a big hit among buyers during the Prime Day. While announcing the Prime Day, Ghani said “During Prime Early Access Sale, members will be able to shop some of the best holiday deals of the season, including first-time deals from national must-have brands like Peloton and some of Amazon’s lowest prices of the year.”

Amazon stock has fallen amid the market sell-off

Amazon stock has fallen over the last month amid the turmoil in broader markets. The S&P 500 tumbled over 9% in September and even the formidable Apple has come under pressure. The iPhone maker however continues to be the best-performing FAANG stock of the year.

Most Wall Street analysts are meanwhile bullish on AMZN stock after the crash. Last week, JPMorgan reiterated the stock as overweight. It said, “AMZN remains our Best Idea as we continue to expect Y/Y revenue acceleration, margin expansion & capex moderation (all led by Retail) to drive significant FCF inflection in 2023.”

Amazon guided for revenues between $125-$130 billion in the third quarter while analysts were predicting them to be $126.4 billion.  During the earnings call it said, “Our growth rates going forward will no longer require this historical explanation. Q2 last year was also when vaccines have become more available, particularly in the United States, and we began to see more normal shopping patterns.”

AMZN posted better-than-expected earnings in Q2 2022

Amazon posted revenues of $121.2 billion in the second quarter which were 7.2% higher YoY. It was the slowest growth in two decades for the company. The company faced several headwinds in the quarter including slowing retail sales, a stronger dollar, and tougher YoY comps.

It also posted a massive loss in the quarter but it was due to the mark-to-market losses on its Rivian investment. Ford also took a charge on its Rivian investment in the quarter amid the slump in Rivian stock. However, since Rivian stock has recovered, the companies might book a gain in the third quarter. Ford has trimmed some of its stake in Rivian but Amazon continues to hold and is the largest stockholder of the startup EV company. It has also placed an order for 100,000 electric delivery vans from Rivian.

Amazon has also announced that over the next five years it would spend $1 billion on fleet electrification in Europe.

Amazon is facing higher costs and headwinds from excess capacity

During the Q1 2022 earnings call, Amazon talked about incremental costs of around $6 billion spread between higher inflation, overcapacity, and overstaffing. While inflation is something that is mostly beyond the company’s control, it is working on addressing the other two. During the second quarter, these costs totaled $4 billion as compared to the corresponding period last year.

It said, “We made strides to improve fulfillment network productivity in Q2. Staffing levels were more in line with rising Q2 demand, and we saw better optimization of our fulfillment network. On the transportation side, we continue to improve delivery, route density, and improve package deliveries per hour. We are encouraged by the progress during the quarter and see opportunity to further improve in the second half of the year.”

Morgan Stanley is bullish on AMZN stock

Morgan Stanley, which has an overweight rating on Amazon believes that the company has built enough fulfillment network capacity until 2024. The brokerage lowered its estimates for Amazon’s capex by $10 billion for 2023 and $6 billion for 2024.

Notably, while Amazon said during the Q1 2022 earnings call that it is overstaffed and has laid off some contractors, the company announced last week that it is hiring 150,000 employees ahead of the holiday season.

This year’s holiday season is coming amid a slowing US economy. Also, retail companies are sitting on massive inventories which they would look to clear. Incidentally, along with Amazon, Target and Walmart are also luring buyers with their sale events. While Target’s sale event just finished, Walmart’s would start today and run for four days.