Christmas Sales Slowdown Hits Amazon Hard

Thursday night saw a sharp drop in Amazon Christmas sales volumes. This is attributed to some really disturbing Christmas season sales forecast by the online giant.

According to the forecast, Amazon postulated that it expects a year-on-year sales growth of between 10% and 20% in the last quarter of this year, from October through December. Comparatively, that would be a notable slowdown from its recent quarter sales jump that saw the company register profits amounting to $5.6. This was quite a boost in sales – 29% sales jump. In the same quarter, preceding the current sales plunge, the company made sales profits close to $2.9bn. That was way more than what it registered in the same period the year; it made $256bn then.

By all measures and standards, this Seattle-based online giant has been on a big profit spree for the longest time. Until the Christmas sales plunge, the company has made profits exceeding 1nb for the fourth quarter in a row. This comes in the wake of a 21% increase in its total operating expenses. The rise in expenses is attributed to investment in the Amazon Prime membership scheme as well as the offering of home deliveries from Whole Foods Stores. Some additional cost is also thought to come from investment in original content production on the Amazon Prime Video platform.

Sources intimate that Amazon’s surge in profits for the period preceding this current quarter, was attributed in part to divisions outside its normal retail operations. For instance, returns from AWS, the popular Amazon cloud platform, rose by 46% annually to the tune of $6.7bn during the quarter ending 30th September alone. Other revenue sources also did fairly well during the same business quarter. Noteworthy is the firm’s advert platform that saw a supernormal profit growth of $2.5. This translates to a 122% increase in sales profits.

All that notwithstanding, retail remains Amazon’s strongest revenue source, with strongest visibility and growth in North America. It is also making inroads in other parts of the global online retail market.

Even with the boom in sales, Amazon also grapples with a fair share of challenges. Stiff competition from low-cost market giants like Walmart is one such thorn in the flesh. Such worthy competitors are steadily gaining grounds in domains formerly under Amazon, like online sales. According to Neil Saunders, an expert working with GlobalData Retail, a major shift has rocked the retail landscape, and that is expected to continue even further. He says, “There is more competition in online retail than there has ever been, and that competition is more effective than it has ever been.”

 

Even so, the company’s online sales last year alone was 10% higher than the previous year. It made more than $2.9bn in 3rd quarter sales profits. The company’s physical retail outlets, which are mostly Whole Foods grocery chain stores, made a cool $4.2bn in the same period. These grocery chain stores were only acquired last year yet their sales return is quite promising.

Amazon’s sales profit forecast for the 4th quarter, the period ending 31st December, is projected to be between $66.5bn and $72.5bn. That’s a little too low for this online retail giant, considering its market share command. Analysts attribute this modest Christmas sales projection to a number of factors, including fluctuations in the currency and stock market. They also associated it with some radical business changes adopted by the company recently, such as its acquisition of Whole Foods grocery chain stores.

In spite of the low Christmas profit forecast, the company’s chief financial expert Brian Olsavsky remains optimistic. He indicates that Amazon’s consumer buying habits are expected to remain healthy and steady. In his own words, he said, “We’re very bullish on the fourth quarter – we’ll just have to see where revenue comes in.”

The disturbing sales forecast also did impact the stock market greatly. Following the announcement, Amazon shares fell by 8%, only hours after ending 7% higher in the last trading cycle in New York. However, the general annual trend in stock trade remain promising; it actually jumped by close to 40% this year.

According to George Salmon, an equity analyst at Hargreaves Lansdown, Amazon’s market influence is expected to continue growing steadily, even with the low Christmas sales forecast. Salmon indicates that Amazon’s high optimism and expectations have seen a boost in share prices to levels where swings were anticipated.