Amazon Posts First Quarterly Loss Since 2015 as E-Commerce Dips

The US economy got a double-barreled dose of unexpected bad news yesterday as GDP contracted by 1.4% in Q1 and the most powerful engine of the economy—e-commerce titan Amazon—posted its first quarterly loss since 2015.

Amazon said it lost $3.8B in Q1, a huge downward swing from the more than $8B in profits the company reaped in Q1 2021.

Perhaps most surprising of all was the news that Amazon’s online sales dropped for the first time since the company began disclosing this metric five years ago, and—for the first time since the beginning of the pandemic—in-store retail sales in the US in March grew while e-commerce slowed down.

According to Mastercard’s SpendingPulse, which tracks transactions made over the Mastercard payments network and survey-based estimates for cash and checks, e-commerce sales declined in March, compared to March 2021, while in-store sales rose.

Unfortunately for investors in bricks-and-mortar retail, this ray of hope is likely to fade like a flash of lightning in a thunderstorm as the overall economy appears to be hurtling towards a recession that could become official when Q2 GDP is revealed in July.

While some analysts heralded the “return to normal” theme of consumers moving back to in-store shopping, there’s no avoiding the reality that spiraling inflation is beginning to constrict all forms of shopping as rising prices—exacerbated by shortages of goods due to continuing supply-chain congestion—induce consumers to spend less.

The downward pressure on the brakes of the US economy will increase significantly next month when the Federal Reserve, which tapped the brake pedal with a 25 bps interest rate hike last month, delivers what is widely expected to be a rate hike of at least 50 bps next month.

Amazon’s disclosure that its online sales dropped by 3% YOY during Q1 is the latest indicator that the amazing surge of e-commerce during the pandemic may finally be running out of steam: the online share of US retail sales, which surged to nearly 16% in the second quarter of 2020, fell to 12.9% during 4Q 2021.

Amazon said its revenue rose by about 7% during Q1, the slowest pace in nearly two decades for the e-commerce giant.

In addition to the slump in online sales, Amazon cited rising costs due to inflation and supply-chain congestion as primary causes of its Q1 slump. According to Amazon CFO Brian Olsavsky, the company absorbed $6B in increased costs during Q1 from “productivity loss, inflation and situations where its warehouse capacity exceeded demand.”

While Amazon has spent billions doubling the size of its distribution network—now encompassing more than 400M SF—during the pandemic, the total value of goods sold on Amazon’s platform in 2021 grew at half the rate it did in 2020, according to research firm Marketplace Pulse.

Amazon’s bottom line also took a significant hit from its 18% stake in electric truck maker Rivian, which has seen its stock drop by more than 65% this year as it struggled to keep its assembly line running due to supply-chain shortages.

After pledging for several months that it would serve as a “shock absorber” for inflation, Amazon this month hit third-party sellers with a 5% “fuel and inflation” surcharge. The company also has increased the yearly fee for its Prime service to $139 from $119.

The best news for Amazon in its Q1 results came from Amazon Web Services. Sales for the cloud-computing business, the world’s largest, rose 37%, the company said.