May 1, 2025 • 16 mins
Amazon.com gave a weaker-than-expected forecast for operating profit in the current quarter, pointing toward tariffs and trade policies that may cause consumers to pull back on spending. The world’s largest online retailer projected operating profit of $13 billion to $17.5 billion, compared with an average estimate of $17.8 billion. Sales will be $159 billion to $164 billion in the period ending in June, the company said Thursday in a statement. Analysts, on average, expected $161.4 billion.
Amazon shares have fallen about 13% this year as Wall Street weighs the impact of President Donald Trump’s tariffs on a retail operation that sources much of its goods from China. Investors are generally bullish on the company’s efforts to become a major force in artificial intelligence, but there are concerns that Amazon’s prodigious spending on data centers may not translate into meaningful sales growth any time soon.
Amazon Web Services, the largest seller of rented computing power, reported first-quarter sales gained 17% to $29.3 billion, in line with analysts’ estimates. It was the unit’s slowest growth in a year.
For instant reaction and analysis, hosts Carol Massar and Tim Stenovec speak with:
- Bloomberg Technology co-host Caroline Hyde
- Bloomberg Intelligence senior US e-commerce and retail analyst Poonam Goyal
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is a breaking news update from Bloomberg instant reaction
and analysis from our three thousand journalists and analysts around
the world. I'm looking at shares of Amazon in the
after hours. One number that really sticks out to everybody.
Second quarter operating income outlook MISSUS thirteen billion dollars to
seventeen and a half billion dollars. The estimate was for
(00:31):
seventeen point eight two billion dollars. Let's get into it
with Caroline Hyde. She's the co host of Bloomberg Technology
on Bloomberg TV. Each day at eleven Wall Street time.
She joins us here in the Bloomberg Interactive Brokers studio. Caroline,
typically we'd be talking about AWS in any other quarter.
Speaker 3 (00:48):
That's crazy, that's not at all.
Speaker 2 (00:50):
I mean, for years, that's what we do AWS, that's
what we care about. That's where the margins are. But
then you have Liberation Day, so called Liberation Day, and
now all anybody cares about is who's paying for these tariffs?
Speaker 1 (01:01):
But I suppose there's also still the focus on margins.
The reason we care so much about AWS is it's
the profit driver, right, But we're now worrying about a
profit issue here with an operating income number coming in
well below expectations, that breadth of guidance that they give
us that almost like four billion wiggle room that's very normal.
Speaker 2 (01:18):
Is that operating income guidance is hit? Is that due
to tariffs or is it due to competition? When it
comes to AWS, I think.
Speaker 1 (01:27):
You have to work out also whether it's infrastructure spend Look,
what happened with Meta was that they said, look, we're
going to have to be spending more on our capital
expenditure because the infrastructure costs are going to be a
little bit higher. But profitability over mo'all is going to
be sucked up by what ultimately they're going to have
to pay for From a margin perspective, is it that
they suck up some of the margin hit themselves to
keep the consumer, which is in a vulnerable position, keep
(01:49):
coming back to Amazon? Is it also that the third
party sellers are going to be retrenching a little bit more?
What was going to be happening to advertising? Because they
did really well on advertising. But if you're seeing from
some of these snap and the likes of others talking
about the Chinese retailers, no longer wanting to be overall
spending on advertising. Is that going to be taking in
terms of the overall margin generation? And ultimately what does
(02:12):
this mean in terms of how much a WS and
its strength being able to prop up ultimately an e
commerce side of the business that has to suck up
a margin hit if they're going to be able to
keep the consumer coming.
Speaker 4 (02:22):
We were kind of blown away, and I mean I
went through the press release really quickly. I didn't see tariffs.
Alex mentioned one, but it was kind of in the
you know, the disclosure, like they didn't seem to touch it,
and you can as touch it.
Speaker 1 (02:36):
Not touch it, even use the word tariff as a
CFO of meta. They at least put tariff and trade policies,
which are the only new lines in that forward looking
guidance paragraph.
Speaker 3 (02:48):
All right, so but you know that's going to be
top of mind.
Speaker 4 (02:51):
I know it's like kind of amazing, but I get it,
I get it.
Speaker 3 (02:55):
I mean I.
Speaker 4 (02:56):
Don't know what what kind of color can we expect
from them.
Speaker 3 (02:59):
I think there's so speculation. I mean, will they be
able to really pinpoint the cost? What are they seeing
at this point? Caroline?
Speaker 1 (03:06):
Because I think Andy Jesse did give an interview earlier
in the month, well earlier in last month now and
in April. Isn't it mad that it's made?
Speaker 3 (03:14):
But it's crazy looking back.
Speaker 1 (03:15):
And really he was saying, look, there's going to be
horses for courses, there are some negotiations that were in
the midst of and yes, maybe we start to try
and push back and ask for ultimately the ultimate seller
the Chinese celler. Remember, Amazon gets about seventy percent of
its products from China, whether they're selling them on their
own platform, whether they're selling them via third parties, and
so are they going to pass that off on them
(03:37):
if they're in the midst of a negotiation, maybe they do.
But otherwise, if they're still got they've got the contract
already existing, they're going to have to suck it up
a little bit themselves.
Speaker 3 (03:45):
And we certainly know.
Speaker 1 (03:47):
That they're not going to be making evident how much
the tariff is going to be adding to their prices.
Speaker 4 (03:51):
How do you roll that into right, that's the report
that they.
Speaker 3 (03:55):
Were they really considering. I'm sure a lot of these things.
Speaker 1 (03:59):
That's the same with the as the story, and potentially
maybe they have to consider a new CEO. At some
point there's probably new smoke without far I'm pretty sure
at some point the whole side of the business now
sheans well and were making it evident how much twerffs
are increasing. So probably you went internally, oh boy, that's
what they're doing. Maybe we should consider something similar. But
(04:19):
at no point was this signed off, and no point
was this run up the ladder and them going oh yeah,
if you go, stop making evidence. So I'm pretty sure
that they are clear that this was not signed off,
this was not agreed, But they have to be disive
to consider it to be foolish not.
Speaker 2 (04:33):
To Amazon at least find it find itself in the
position that this is not a story that's unique to Amazon.
From the perspective of a retailer, a company such as
Walmart and Target would have to go through the same thing.
Speaker 1 (04:43):
So true.
Speaker 2 (04:44):
What is different though, is Amazon's exposure for its cloud business.
So we can't look at Microsoft as sort of a
pure play comparison to Amazon anymore, or even Google Cloud.
What does it mean that that Amazon it kind of
doesn't matter if they have to raise prices to the
extent of competition coming in and saying, you know, we
can get this product for cheaper for elsewhere. Because if
(05:05):
Amazon's prices go up from their suppliers I'm talking physical
goods here that are sold through the retail site, everybody's
prices are going to go up too. And that just means,
you know, as American consumers who buy this stuff, we're
the ones who are going to.
Speaker 5 (05:17):
Have to be paying.
Speaker 1 (05:18):
And that is trying to be what's told to the
consumer base right now. Evidently this is going to be
an inflationary pressure bag of American security is ahead of
these numbers, put it really well, but basically, you know
it's going to be the biggest focus is tariffs, and
given that everyone's in the same boat, ultimately you're going
to have the bet a little bit that Amazon's going
(05:39):
to weather this better than anyone else. They've got the
cash on the balance sheet, They've got potential ability to
stomach some of the margin hit, much more so than
a Wayfair or some others that are offering e commerce
out there. And so yeah, Amazon is the one, perhaps
in this difficult situation that you build on to write
out the storm.
Speaker 4 (05:59):
But there's always the side too, because you know, the
sev seventy percent of their goods, right, they come from China,
whether it's directly or through you know, they employ Chinese workers, right,
So I'm just curious, like, what's the Chinese perspective on
Amazon and the importance it is to their economy?
Speaker 3 (06:16):
Do you mean everything of you know what? I don't know?
Speaker 1 (06:19):
And that's the key question for Shijingping is that ultimately
how much do they have to support their own economy
support some of their exporters at this moment. And I'm
pretty sure that China has decided that they're going to
fight fire with fire in many ways and decide that.
Speaker 3 (06:33):
If you want to cut us off so bit.
Speaker 1 (06:34):
But I think Amazon is the one in the position
here that has to help with the renegotiations, has to
stomach some of the margin hit in because we don't
know where this is going for the next few months.
At the moment, they're facing one hundred and forty five
and twenty five percent tariff, right, Where does it go
from here? How much are they able to change supply chains?
So in the interim they probably stuck up the margin hit.
(06:56):
In the longer term, how do they start to change
as we've seen with Apple. Oh, Suddenly a lot of
my goods are coming from India now, which other countries
start to benefit. But you're right, what is their relationship
like with their supplies? How are they trying to make things?
Speaker 3 (07:09):
What things?
Speaker 1 (07:10):
That's interesting with Amazon always they're not afraid to disappoint
investors on profit point.
Speaker 3 (07:15):
They're sales. They're actually looking for it.
Speaker 1 (07:18):
The Decade podcast is good and resilient for sales. It's
just they're saying, sorry, guys, suck up the operating margin.
Speaker 4 (07:26):
Hit the stack is now, I mean still down two percent,
but it's not down for a five percent which it
was before.
Speaker 3 (07:30):
It hasn't started, no, true.
Speaker 1 (07:32):
And they're talking all about the innovations. They're talking about
the satellite side of the business. They're talking about putting
sacks as an offering on the e commerce site. They're
talking about what you can get in terms of AI
innovations if you're coming to their cloud computing. Also their
foundational models that they're going to aim at consumers too.
They've got their own chips. They're going to try and
talk up the resiliency of their business model when in
the interim, yes, they might going to have to pass
(07:54):
on some cost to the consumer base and the e
commerce but the lag is somewhat It's.
Speaker 4 (07:58):
Just like, as you said, amazing, we would normally just
like all of our AGAs.
Speaker 2 (08:01):
That's what we just kind of carried about. Caroline, you
got to go TV as calling. They want to talk
to you. Caroline is the co host of Bloomberg Technology
on a Bloomberg TV eleven o'clock Wall Street time. Let's
go continue on Amazon, specifically on the retail side. I
want to bring on Punham Gooyle, senior analyst for e
commerce at Leisure off Price Retail for Bloomberg Intelligence. She
JOINSU from New York City this afternoon. Let's talk about
(08:24):
this miss when it comes to second quarter operating income.
The outlook there is that a result of tariffs. In
your view, it.
Speaker 5 (08:32):
Has to be, because when I think about the operating
margin that they just posted with AWS, you know, incredible
near forty percent. The downside that we're seeing going into
two Q, I can't think of anything else that could
be driving that than higher costs that they'll have to
absorb due to the tariffs.
Speaker 4 (08:49):
Are you surprised that, like we kind of you know,
went through that press release, there's really nothing on tariffs.
There's like that disclosure that kind of dumps everything at
the very bottom of the page. Not surprise to see
that they didn't really address it in the release, and
I guess it's all going to come out on the call.
Speaker 5 (09:05):
Yeah, I think there's going to be a lot of
questions about tariffs. Keep in mind that you know, Amazon
is directly exposed on the one P side, so roughly
forty percent of its business is where they do have
to deal with tariffs. The other sixty percent, that's three
P the sellers have to deal with them, but Amazon
helps you set the price on its platform to make
it competitive. So there's just a lot of back and
(09:25):
forth that's going on, and with some suppliers they are
working one on one to see where they can help
offset the price increases. But the biggest delta between one
Q and two Q is tariffs. So the guidance that
we see here has to be a result of that
that wide net that they've cast it.
Speaker 2 (09:42):
You mentioned the PS, but translate for.
Speaker 5 (09:45):
Us sure a third party and first party. First party
when Amazon owns the goods, so basically they take on
the cost and they directly source it from the supplier.
Third party is if you and I go on to
am done and we start selling stuff.
Speaker 2 (10:01):
What's the breakdown in terms of actual goods that are
sold third party versus first party?
Speaker 5 (10:06):
Sure, third party we estimate is about sixty five percent
and third and first party is about thirty five to
forty percent. Okay, sixty four.
Speaker 2 (10:14):
And is there more like third party is more from
China or do we not know than first party?
Speaker 5 (10:19):
Well we Amazon doesn't tell you how much they get
from China, but just by looking at what's on their
platforms and third party data, irrespective third party or first party,
it's estimated that over seventy percent of what's sold on
the Amazon dot Com platform is from China. So it's
a large, large, large piece of their market place.
Speaker 2 (10:39):
Just to remind everybody, I mean you you you study
e commerce at Leisha off price retail. This is you know,
this is your world. This stuff is made overseas, like
very little of it is made here in the US,
very little.
Speaker 5 (10:52):
I mean food is the only thing we may procure
locally that Amazon sells. Really everything else, the bulk of
what you buy in retail in the US is made
outside of the US. It doesn't matter who you are.
Speaker 3 (11:05):
What I don't know, Okay, I'll let him have a moment.
You know what's interesting put in We kind of just
laughed that.
Speaker 4 (11:12):
Normally when we're talking Amazon, we're all over Amazon Web
services and it's like, oh yeah, that retail business. So
what an interesting kind of report to go through and
what we're focusing on. I do want to point out, though,
that AWS reported first quarter sales gains seventeen percent to
twenty nine point three billion, in line with analyst testaments.
It was the unit's slowest growth in a year. So
(11:33):
it does feel like, I don't know, like, what do
we get out of that.
Speaker 3 (11:37):
I think it's okay.
Speaker 5 (11:38):
I mean, okay, I'm going to see businesses pull forward
spend pulled back on spend. There's still a lot of
momentum here on the AWS side. And really, you know
why the sales were just in line. The margin was
incredible thirty nine percent operating margins thirty nine point five
percent roughly, that's huge. Consensus is looking for about thirty
(11:58):
five percent. So we do that think, you know, this
business will ab and flow and you'll have high margins,
you'll have low margins depending on where they invest. But
the long term potential of AWS is still pretty sizable,
and there's a long runway here.
Speaker 2 (12:12):
Okay, So if we think about this in the context
of what we heard from what we've heard from other
companies thus far, what we heard from Microsoft yesterday, and
as a reminder, I mean, you cover the e commerce
at leisure, the off price retail. How do you think
about this in terms of the retail world like the
Walmart's of the world, the targets of the world. How
does this report sort of inform the way we should
(12:34):
be thinking about and investors should be thinking about those
other companies.
Speaker 5 (12:38):
I think if Amazon's facing these tariff headmonds, so is
everyone else, including Walmart, including smaller companies, medium sized companies,
And really there is no escape from this unless we
see things come from here. The one hundred and forty
five percent tariff that you see on China is sizable.
Now if that stays that way, the consumer is going
(12:59):
to be paying higher prices. We will see some out
of stocks on shelves in the coming months, as most
companies have halted shipments from China, and it's not going
to be an overnight switch to take everything that you
make in China to somewhere.
Speaker 2 (13:13):
Else, or even impossible for something some analysts have said, well,
you said empty shelves. Where are we going to see them?
What do you think we'll.
Speaker 3 (13:20):
See them empty shells? But in like a drugstore. But
I don't know that's.
Speaker 2 (13:25):
Because everybody stole everything there, Carroll, don't you know how
this works?
Speaker 3 (13:28):
I know it's there was a little war perspective. Go ahead, Buno.
Speaker 5 (13:31):
Sorry, Well, you won't see empty shelves on Amazon, but
you will see out of stocks. In fact, you know,
I was just browsing the web randomly and I started
to see some things that just said out of stock,
like we'll let you know when it comes back. So
I think you'll start to see inventory, especially that that
comes out of China, be put on hold and we
don't know when it'll come back. Because unless you raise
(13:53):
the prices or double them, you're not making the same
margin on what's.
Speaker 2 (13:57):
The consumer's willingness to pay for this stuff. Because, as
I was mentioning to Caroline, if we see these price
increases across the board, if we see them a Target,
if we see them at Walmart, it's not like this
is an Amazon specific story. We're going to see this everywhere.
At what point does the consumer throw in the towel
and say I'm not going to do this.
Speaker 3 (14:12):
I'm not going to pay.
Speaker 5 (14:14):
I think the consumer will say I'm not going to
pay when prices go up thirty forty percent, Right, it's
going to get more expensive. And if they say they
don't pay, it means before they've bought ten things, now
they'll buy three things. Where are they buying those three things?
Are they going to trade down from a national brand
to a private brand. Are they going to buy more
staples that they can you know, like staple colors that
(14:36):
they can reuse, recycle reware, and wear less fashion that
goes out of style quickly. There's going to be trade
offs if prices rise materially. That said, we do think that,
you know, people will just switch brands, they'll switch options
where they can get things cheaper. We're going into the
back half in just a few months, and that's the
peak selling season of retail. When you think about toys
(15:00):
specifically right for the holidays, when you think of back
to school, Yeah, I mean, what do you get your
kids If you're not going to get them the barbie
and you're not going to pay, you know, you can
only get them.
Speaker 4 (15:08):
Two barbies thirty barbies only two dollars dolls. Sorry, no,
I'm just repeating you know what we've heard. Hey, one
last question I will say though, with the Amazon cart,
like when you put them in and like you automatically
see the value, like if things start to get more expensive,
like you might pull back thirty seconds. Top question you
think must be asked on the Amazon call?
Speaker 5 (15:31):
How are we weathering this teriff storm that we're going into,
especially you know with three piece sellers. How are they
going to control that? Amazon is still an attractive place
where value is seen because they don't have a control
on prices for everything.
Speaker 4 (15:44):
All right, Gonna leave it there, Hey, put them, Thank
you so much, super super good conversation.
Speaker 3 (15:50):
Put them.
Speaker 4 (15:50):
Coyle, senior analyst for e commerce at Leisure, Off Price
Retail for Bloomberg Intelligence. Shares of Amazon by the Way,
which gave a weeker than expected forecast for operating profit
in the current quarter.
Speaker 3 (15:59):
Off It's lows but still down.
Speaker 5 (16:04):
H
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is a breaking news update from Bloomberg instant reaction
and analysis from our three thousand journalists and analysts around
the world. I'm looking at shares of Amazon in the
after hours. One number that really sticks out to everybody.
Second quarter operating income outlook MISSUS thirteen billion dollars to
seventeen and a half billion dollars. The estimate was for
(00:31):
seventeen point eight two billion dollars. Let's get into it
with Caroline Hyde. She's the co host of Bloomberg Technology
on Bloomberg TV. Each day at eleven Wall Street time.
She joins us here in the Bloomberg Interactive Brokers studio. Caroline,
typically we'd be talking about AWS in any other quarter.
Speaker 3 (00:48):
That's crazy, that's not at all.
Speaker 2 (00:50):
I mean, for years, that's what we do AWS, that's
what we care about. That's where the margins are. But
then you have Liberation Day, so called Liberation Day, and
now all anybody cares about is who's paying for these tariffs?
Speaker 1 (01:01):
But I suppose there's also still the focus on margins.
The reason we care so much about AWS is it's
the profit driver, right, But we're now worrying about a
profit issue here with an operating income number coming in
well below expectations, that breadth of guidance that they give
us that almost like four billion wiggle room that's very normal.
Speaker 2 (01:18):
Is that operating income guidance is hit? Is that due
to tariffs or is it due to competition? When it
comes to AWS, I think.
Speaker 1 (01:27):
You have to work out also whether it's infrastructure spend Look,
what happened with Meta was that they said, look, we're
going to have to be spending more on our capital
expenditure because the infrastructure costs are going to be a
little bit higher. But profitability over mo'all is going to
be sucked up by what ultimately they're going to have
to pay for From a margin perspective, is it that
they suck up some of the margin hit themselves to
keep the consumer, which is in a vulnerable position, keep
(01:49):
coming back to Amazon? Is it also that the third
party sellers are going to be retrenching a little bit more?
What was going to be happening to advertising? Because they
did really well on advertising. But if you're seeing from
some of these snap and the likes of others talking
about the Chinese retailers, no longer wanting to be overall
spending on advertising. Is that going to be taking in
terms of the overall margin generation? And ultimately what does
(02:12):
this mean in terms of how much a WS and
its strength being able to prop up ultimately an e
commerce side of the business that has to suck up
a margin hit if they're going to be able to
keep the consumer coming.
Speaker 4 (02:22):
We were kind of blown away, and I mean I
went through the press release really quickly. I didn't see tariffs.
Alex mentioned one, but it was kind of in the
you know, the disclosure, like they didn't seem to touch it,
and you can as touch it.
Speaker 1 (02:36):
Not touch it, even use the word tariff as a
CFO of meta. They at least put tariff and trade policies,
which are the only new lines in that forward looking
guidance paragraph.
Speaker 3 (02:48):
All right, so but you know that's going to be
top of mind.
Speaker 4 (02:51):
I know it's like kind of amazing, but I get it,
I get it.
Speaker 3 (02:55):
I mean I.
Speaker 4 (02:56):
Don't know what what kind of color can we expect
from them.
Speaker 3 (02:59):
I think there's so speculation. I mean, will they be
able to really pinpoint the cost? What are they seeing
at this point? Caroline?
Speaker 1 (03:06):
Because I think Andy Jesse did give an interview earlier
in the month, well earlier in last month now and
in April. Isn't it mad that it's made?
Speaker 3 (03:14):
But it's crazy looking back.
Speaker 1 (03:15):
And really he was saying, look, there's going to be
horses for courses, there are some negotiations that were in
the midst of and yes, maybe we start to try
and push back and ask for ultimately the ultimate seller
the Chinese celler. Remember, Amazon gets about seventy percent of
its products from China, whether they're selling them on their
own platform, whether they're selling them via third parties, and
so are they going to pass that off on them
(03:37):
if they're in the midst of a negotiation, maybe they do.
But otherwise, if they're still got they've got the contract
already existing, they're going to have to suck it up
a little bit themselves.
Speaker 3 (03:45):
And we certainly know.
Speaker 1 (03:47):
That they're not going to be making evident how much
the tariff is going to be adding to their prices.
Speaker 4 (03:51):
How do you roll that into right, that's the report
that they.
Speaker 3 (03:55):
Were they really considering. I'm sure a lot of these things.
Speaker 1 (03:59):
That's the same with the as the story, and potentially
maybe they have to consider a new CEO. At some
point there's probably new smoke without far I'm pretty sure
at some point the whole side of the business now
sheans well and were making it evident how much twerffs
are increasing. So probably you went internally, oh boy, that's
what they're doing. Maybe we should consider something similar. But
(04:19):
at no point was this signed off, and no point
was this run up the ladder and them going oh yeah,
if you go, stop making evidence. So I'm pretty sure
that they are clear that this was not signed off,
this was not agreed, But they have to be disive
to consider it to be foolish not.
Speaker 2 (04:33):
To Amazon at least find it find itself in the
position that this is not a story that's unique to Amazon.
From the perspective of a retailer, a company such as
Walmart and Target would have to go through the same thing.
Speaker 1 (04:43):
So true.
Speaker 2 (04:44):
What is different though, is Amazon's exposure for its cloud business.
So we can't look at Microsoft as sort of a
pure play comparison to Amazon anymore, or even Google Cloud.
What does it mean that that Amazon it kind of
doesn't matter if they have to raise prices to the
extent of competition coming in and saying, you know, we
can get this product for cheaper for elsewhere. Because if
(05:05):
Amazon's prices go up from their suppliers I'm talking physical
goods here that are sold through the retail site, everybody's
prices are going to go up too. And that just means,
you know, as American consumers who buy this stuff, we're
the ones who are going to.
Speaker 5 (05:17):
Have to be paying.
Speaker 1 (05:18):
And that is trying to be what's told to the
consumer base right now. Evidently this is going to be
an inflationary pressure bag of American security is ahead of
these numbers, put it really well, but basically, you know
it's going to be the biggest focus is tariffs, and
given that everyone's in the same boat, ultimately you're going
to have the bet a little bit that Amazon's going
(05:39):
to weather this better than anyone else. They've got the
cash on the balance sheet, They've got potential ability to
stomach some of the margin hit, much more so than
a Wayfair or some others that are offering e commerce
out there. And so yeah, Amazon is the one, perhaps
in this difficult situation that you build on to write
out the storm.
Speaker 4 (05:59):
But there's always the side too, because you know, the
sev seventy percent of their goods, right, they come from China,
whether it's directly or through you know, they employ Chinese workers, right,
So I'm just curious, like, what's the Chinese perspective on
Amazon and the importance it is to their economy?
Speaker 3 (06:16):
Do you mean everything of you know what? I don't know?
Speaker 1 (06:19):
And that's the key question for Shijingping is that ultimately
how much do they have to support their own economy
support some of their exporters at this moment. And I'm
pretty sure that China has decided that they're going to
fight fire with fire in many ways and decide that.
Speaker 3 (06:33):
If you want to cut us off so bit.
Speaker 1 (06:34):
But I think Amazon is the one in the position
here that has to help with the renegotiations, has to
stomach some of the margin hit in because we don't
know where this is going for the next few months.
At the moment, they're facing one hundred and forty five
and twenty five percent tariff, right, Where does it go
from here? How much are they able to change supply chains?
So in the interim they probably stuck up the margin hit.
(06:56):
In the longer term, how do they start to change
as we've seen with Apple. Oh, Suddenly a lot of
my goods are coming from India now, which other countries
start to benefit. But you're right, what is their relationship
like with their supplies? How are they trying to make things?
Speaker 3 (07:09):
What things?
Speaker 1 (07:10):
That's interesting with Amazon always they're not afraid to disappoint
investors on profit point.
Speaker 3 (07:15):
They're sales. They're actually looking for it.
Speaker 1 (07:18):
The Decade podcast is good and resilient for sales. It's
just they're saying, sorry, guys, suck up the operating margin.
Speaker 4 (07:26):
Hit the stack is now, I mean still down two percent,
but it's not down for a five percent which it
was before.
Speaker 3 (07:30):
It hasn't started, no, true.
Speaker 1 (07:32):
And they're talking all about the innovations. They're talking about
the satellite side of the business. They're talking about putting
sacks as an offering on the e commerce site. They're
talking about what you can get in terms of AI
innovations if you're coming to their cloud computing. Also their
foundational models that they're going to aim at consumers too.
They've got their own chips. They're going to try and
talk up the resiliency of their business model when in
the interim, yes, they might going to have to pass
(07:54):
on some cost to the consumer base and the e
commerce but the lag is somewhat It's.
Speaker 4 (07:58):
Just like, as you said, amazing, we would normally just
like all of our AGAs.
Speaker 2 (08:01):
That's what we just kind of carried about. Caroline, you
got to go TV as calling. They want to talk
to you. Caroline is the co host of Bloomberg Technology
on a Bloomberg TV eleven o'clock Wall Street time. Let's
go continue on Amazon, specifically on the retail side. I
want to bring on Punham Gooyle, senior analyst for e
commerce at Leisure off Price Retail for Bloomberg Intelligence. She
JOINSU from New York City this afternoon. Let's talk about
(08:24):
this miss when it comes to second quarter operating income.
The outlook there is that a result of tariffs. In
your view, it.
Speaker 5 (08:32):
Has to be, because when I think about the operating
margin that they just posted with AWS, you know, incredible
near forty percent. The downside that we're seeing going into
two Q, I can't think of anything else that could
be driving that than higher costs that they'll have to
absorb due to the tariffs.
Speaker 4 (08:49):
Are you surprised that, like we kind of you know,
went through that press release, there's really nothing on tariffs.
There's like that disclosure that kind of dumps everything at
the very bottom of the page. Not surprise to see
that they didn't really address it in the release, and
I guess it's all going to come out on the call.
Speaker 5 (09:05):
Yeah, I think there's going to be a lot of
questions about tariffs. Keep in mind that you know, Amazon
is directly exposed on the one P side, so roughly
forty percent of its business is where they do have
to deal with tariffs. The other sixty percent, that's three
P the sellers have to deal with them, but Amazon
helps you set the price on its platform to make
it competitive. So there's just a lot of back and
(09:25):
forth that's going on, and with some suppliers they are
working one on one to see where they can help
offset the price increases. But the biggest delta between one
Q and two Q is tariffs. So the guidance that
we see here has to be a result of that
that wide net that they've cast it.
Speaker 2 (09:42):
You mentioned the PS, but translate for.
Speaker 5 (09:45):
Us sure a third party and first party. First party
when Amazon owns the goods, so basically they take on
the cost and they directly source it from the supplier.
Third party is if you and I go on to
am done and we start selling stuff.
Speaker 2 (10:01):
What's the breakdown in terms of actual goods that are
sold third party versus first party?
Speaker 5 (10:06):
Sure, third party we estimate is about sixty five percent
and third and first party is about thirty five to
forty percent. Okay, sixty four.
Speaker 2 (10:14):
And is there more like third party is more from
China or do we not know than first party?
Speaker 5 (10:19):
Well we Amazon doesn't tell you how much they get
from China, but just by looking at what's on their
platforms and third party data, irrespective third party or first party,
it's estimated that over seventy percent of what's sold on
the Amazon dot Com platform is from China. So it's
a large, large, large piece of their market place.
Speaker 2 (10:39):
Just to remind everybody, I mean you you you study
e commerce at Leisha off price retail. This is you know,
this is your world. This stuff is made overseas, like
very little of it is made here in the US,
very little.
Speaker 5 (10:52):
I mean food is the only thing we may procure
locally that Amazon sells. Really everything else, the bulk of
what you buy in retail in the US is made
outside of the US. It doesn't matter who you are.
Speaker 3 (11:05):
What I don't know, Okay, I'll let him have a moment.
You know what's interesting put in We kind of just
laughed that.
Speaker 4 (11:12):
Normally when we're talking Amazon, we're all over Amazon Web
services and it's like, oh yeah, that retail business. So
what an interesting kind of report to go through and
what we're focusing on. I do want to point out, though,
that AWS reported first quarter sales gains seventeen percent to
twenty nine point three billion, in line with analyst testaments.
It was the unit's slowest growth in a year. So
(11:33):
it does feel like, I don't know, like, what do
we get out of that.
Speaker 3 (11:37):
I think it's okay.
Speaker 5 (11:38):
I mean, okay, I'm going to see businesses pull forward
spend pulled back on spend. There's still a lot of
momentum here on the AWS side. And really, you know
why the sales were just in line. The margin was
incredible thirty nine percent operating margins thirty nine point five
percent roughly, that's huge. Consensus is looking for about thirty
(11:58):
five percent. So we do that think, you know, this
business will ab and flow and you'll have high margins,
you'll have low margins depending on where they invest. But
the long term potential of AWS is still pretty sizable,
and there's a long runway here.
Speaker 2 (12:12):
Okay, So if we think about this in the context
of what we heard from what we've heard from other
companies thus far, what we heard from Microsoft yesterday, and
as a reminder, I mean, you cover the e commerce
at leisure, the off price retail. How do you think
about this in terms of the retail world like the
Walmart's of the world, the targets of the world. How
does this report sort of inform the way we should
(12:34):
be thinking about and investors should be thinking about those
other companies.
Speaker 5 (12:38):
I think if Amazon's facing these tariff headmonds, so is
everyone else, including Walmart, including smaller companies, medium sized companies,
And really there is no escape from this unless we
see things come from here. The one hundred and forty
five percent tariff that you see on China is sizable.
Now if that stays that way, the consumer is going
(12:59):
to be paying higher prices. We will see some out
of stocks on shelves in the coming months, as most
companies have halted shipments from China, and it's not going
to be an overnight switch to take everything that you
make in China to somewhere.
Speaker 2 (13:13):
Else, or even impossible for something some analysts have said, well,
you said empty shelves. Where are we going to see them?
What do you think we'll.
Speaker 3 (13:20):
See them empty shells? But in like a drugstore. But
I don't know that's.
Speaker 2 (13:25):
Because everybody stole everything there, Carroll, don't you know how
this works?
Speaker 3 (13:28):
I know it's there was a little war perspective. Go ahead, Buno.
Speaker 5 (13:31):
Sorry, Well, you won't see empty shelves on Amazon, but
you will see out of stocks. In fact, you know,
I was just browsing the web randomly and I started
to see some things that just said out of stock,
like we'll let you know when it comes back. So
I think you'll start to see inventory, especially that that
comes out of China, be put on hold and we
don't know when it'll come back. Because unless you raise
(13:53):
the prices or double them, you're not making the same
margin on what's.
Speaker 2 (13:57):
The consumer's willingness to pay for this stuff. Because, as
I was mentioning to Caroline, if we see these price
increases across the board, if we see them a Target,
if we see them at Walmart, it's not like this
is an Amazon specific story. We're going to see this everywhere.
At what point does the consumer throw in the towel
and say I'm not going to do this.
Speaker 3 (14:12):
I'm not going to pay.
Speaker 5 (14:14):
I think the consumer will say I'm not going to
pay when prices go up thirty forty percent, Right, it's
going to get more expensive. And if they say they
don't pay, it means before they've bought ten things, now
they'll buy three things. Where are they buying those three things?
Are they going to trade down from a national brand
to a private brand. Are they going to buy more
staples that they can you know, like staple colors that
(14:36):
they can reuse, recycle reware, and wear less fashion that
goes out of style quickly. There's going to be trade
offs if prices rise materially. That said, we do think that,
you know, people will just switch brands, they'll switch options
where they can get things cheaper. We're going into the
back half in just a few months, and that's the
peak selling season of retail. When you think about toys
(15:00):
specifically right for the holidays, when you think of back
to school, Yeah, I mean, what do you get your
kids If you're not going to get them the barbie
and you're not going to pay, you know, you can
only get them.
Speaker 4 (15:08):
Two barbies thirty barbies only two dollars dolls. Sorry, no,
I'm just repeating you know what we've heard. Hey, one
last question I will say though, with the Amazon cart,
like when you put them in and like you automatically
see the value, like if things start to get more expensive,
like you might pull back thirty seconds. Top question you
think must be asked on the Amazon call?
Speaker 5 (15:31):
How are we weathering this teriff storm that we're going into,
especially you know with three piece sellers. How are they
going to control that? Amazon is still an attractive place
where value is seen because they don't have a control
on prices for everything.
Speaker 4 (15:44):
All right, Gonna leave it there, Hey, put them, Thank
you so much, super super good conversation.
Speaker 3 (15:50):
Put them.
Speaker 4 (15:50):
Coyle, senior analyst for e commerce at Leisure, Off Price
Retail for Bloomberg Intelligence. Shares of Amazon by the Way,
which gave a weeker than expected forecast for operating profit
in the current quarter.
Speaker 3 (15:59):
Off It's lows but still down.
Speaker 5 (16:04):
H
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