Why Did Amazon Take a $3.8 Billion Loss in Q1 2022?

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Patrick Iturra, May 10, 2022

Amazon has been serving customers and improving its services over the years; Amazon has recently broadened its services, which resulted in more revenue generation. All of this and more from the quarterly report announced by Amazon is here for you to know!

Amazon’s Q1 report

Amazon is one of the biggest running e-commerce companies, making remarkable profits around the same time year over year.

So what exactly happened this year that led to such a staggering loss to the company?

Experts suggest various variables involved in this shocking loss faced by Amazon. Let’s see some of the possible factors causing this loss to Amazon in just the first quarter of 2022.

Factors affecting profitability:

Different variables come together to affect the overall profitability of any company; in Amazon’s case, the following are the two factors that seem to have affected the profitability resulting in massive loss.

  • Poor investment

  • Inflation 

Poor investment:

Bad investment has impacted Amazon’s profitability. Amazon is reported to invest a hefty amount of $7.8 billion in the automotive industry creating an electric car. This investment was poorly worked on and was a reason for this loss in Q1 for Amazon.

Amazon’s quarterly report also showed the impact of this investment. Hence, this decision of the financial managers of Amazon led to one of the most considerable losses Amazon has ever faced.

Investing is a big decision that requires market research, comparisons, and a thorough study of the pros and cons. Amazon is the market leader and takes due time in this significant decision; even after all the work that went into it, the risk factor remained there.

Every investment comes with some probable risks that can come as a result. Amazon just had tough luck with this one, and it turned into a massive loss for them.

Inflation’s effect on Amazon’s loss:

The effect of inflation is very prominent to investors and business owners. Inflation has taken a toll on all industries, so web services are not indifferent either. Still, in Amazon’s case, inflation has played a big part in giving Amazon a striking loss in the first quarter of 2022.

Increasing inflation means increasing the cost of shipment. Amazon’s Q1 report states that the rates of shipment post-pandemic have risen three times, leading to a reduction in profit and a higher loss rate.

What can Amazon do to avoid such losses in the future?

Every time a company faces a loss, it helps it grow and learn from it. Amazon has undoubtedly a lot to learn from its Q1 report, and here’s what we’d suggest to Amazon to avoid facing similar losses in the future.

  • Never invest big in something you’re not sure about. The electric car Amazon invested in was a significant risk already. Speculations were that Amazon would regret this decision, but the company went ahead with investing such a massive amount into something that was already a red signal.

When we’re talking about significant investments, we need to generate relevant profit from this investment. This is where Amazon went wrong here and took a considerable risk resulting in their most significant loss.

  • Working on cost efficiency, Amazon has been ranked the number one employer on linked lists in the United States and the second most efficient company by Forbes. As it continues to work on its productivity, Amazon must focus more on cost efficiency to increase profitability.
  • Keep encouraging digital spending. As the pandemic times seem to have subsided, people are again moving towards spending at physical stores rather than shopping online. Amazon needs to find ways to encourage online shopping.

Online spending is what generates revenue for e-commerce businesses like Amazon. If companies don’t work on engaging the customers and keeping track of lost customers, the profitability will start decreasing, resulting in a loss for the company.

Amazon’s performance over the years- A comparison:

Since 2015, this is the first time Amazon’s first quarter has come out unprofitable. This shows how big of a deal it is for the company to report such a considerable loss in just the first quarter of the year.

A loss of $3.8 billion indicates poor delivery in the first quarter for Amazon. Experts suggest one reason for this to be the uplifting of lockdowns in different parts of the world. People have started to shop physically, and online revenue has fallen overall.

Amazon has been known to be a good employer, but in recent years, it has tried to attract more workers through better compensation, increasing its company expenses.

Amazon’s shares fell to 10% as it reported its first loss in a very long time. Financial analysts say Amazon will bounce back with its profitability in the 2nd and 3rd quarterly reports. But the company is still expected to maintain its reputation.

Bottom-line:

Even though Amazon faces industry challenges, the future holds up for Amazon. With a shocking loss of $3.8 billion, Amazon has left investors stunned. Still, the expert opinion on Amazon’s progressive nature over the years has kept the trust and hopes of investors high.

Pandemic time has been tough on all the businesses, but post-pandemic brings new changes in people’s preferences. Thus companies need time to learn more about this changing behavior of the customers.

There’s no single known reason for any loss that a company faces, but all the factors contributing to it are notable, and companies need to learn from them. E-commerce delivery was expected to slow down in 2022; Some companies have already started taking action.

Amazon is learning from its mistakes and coping with the recent loss to make it up in the coming quarters.

For more financial content, you can follow my blog here if you are looking to generate passive income and want to build long-term wealth. Then, you can contact me here! I am here to help, and feel free to ask any questions. 

 

Patrick Iturra, Asset Manager at Estate Investments Group

Business development is the ideas, initiatives, and activities that help improve a business. My experience results in your business’s increased revenue, expansion, and profitability by building strategic partnerships and making strategic business decisions.

 

 

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