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Amazon Com Inc

AMZN

10-Q,quarter ended Mar 31, 2022,filed Apr 29, 2022,Original on SEC EDGAR

3 of 3 checkable figures matched the company’s XBRL, 2 of 4 risk excerpts located in the filing text, 2 withheld

Full summary

The Print

cautious

Amazon reported a Q1 2022 net loss of $(3.8)B (diluted EPS $(7.56)) on net sales of $116.4B, up 7.0% YoY, as a $7.6B Rivian equity valuation loss and a swing to a North America operating loss of $(1.6)B drove the bottom line negative.

Net sales increased 7.0% YoY to $116.4B, which management attributes to a deceleration in net sales growth and increases in operating costs, particularly across North America and International, due to increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies resulting from constrained labor markets and global supply chain constraints. Operating income decreased from $8.9B in Q1 2021 to $3.7B in Q1 2022, and the net result swung to a $(3.8)B loss, which the filing states included a $7.6B marketable equity securities valuation loss from the Rivian investment.

  • Net sales rose 7.0% YoY to $116.4B, with AWS up 37% to $18.4B and International down 6% to $28.8B.
  • Operating income fell to $3.7B from $8.9B, as North America swung to a $(1.6)B operating loss and International to a $(1.3)B loss, partly offset by AWS operating income of $6.5B.
  • Net loss of $(3.8)B included a $7.6B marketable equity securities valuation loss from the Rivian investment and a $1.4B income tax benefit that included $2.1B of net discrete tax benefits.
  • Operating cash flow was $(2.8)B for Q1 2022 versus $4.2B in Q1 2021, and trailing-twelve-month free cash flow was $(18.6)B.

Results That Matter

  • Total net sales
    Current period
    $116.4B
    Prior period
    $108.5B
    Change
    +7.3%
    Sales increased 7% in Q1 2022 compared to the comparable prior year period, with changes in foreign currency exchange rates impacting net sales by $(1.8)B.
  • Operating income
    Current period
    $3.7B
    Prior period
    $8.9B
    Change
    −58.6%
    Operating income decreased from $8.9 billion in Q1 2021 to $3.7 billion in Q1 2022.
  • Net income (loss)
    Current period
    $3.8B
    Prior period
    $8.1B
    Change
    —
    Included in other income (expense), net in Q1 2022 is a marketable equity securities valuation loss of $7.6 billion from our equity securities of Rivian Automotive, Inc.
  • Diluted earnings per share
    Current period
    $7.6
    Prior period
    $15.8
    Change
    −147.9%
    In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.
  • Basic earnings per share
    Current period
    $7.6
    Prior period
    $16.1
    Change
    −147.0%
    Basic earnings per share is calculated using our weighted-average outstanding common shares.

What changed

Quarter over quarter, against the 10-Q for the quarter ended Sep 30, 2021.

Prior 10-Q

Revenue up 7.3%; Net income down 147.4%

  • Revenue+7.3%
    Prior $108.5B, current $116.4BFavorable
  • Net income−147.4%
    Prior $8.1B, current -$3.8BUnfavorable
  • EPS−147.0%
    Prior $16.09, current -$7.56Unfavorable

▲ and ▼ show the direction of each change. Color and “Read as” show whether that direction is usually favorable for the metric.

Earnings Quality & Cash Conversion

The $(3.8)B net loss includes a $7.6B marketable equity securities valuation loss from the Rivian investment within other income (expense), net, and a $1.4B income tax benefit that included $2.1B of net discrete tax benefits primarily attributable to that Rivian valuation loss. Operating income of $3.7B also reflects a $973M reduction in depreciation and amortization expense and a $769M benefit to net loss from the change in estimated useful lives of servers and networking equipment.

Free cash flow of $-17.7B (derived as operating cash flow minus the absolute selected capex cash-flow amount; not an issuer-defined or discretionary-cash measure).

Red flag

Operating cash flow turned negative at $(2.8)B for Q1 2022 versus $4.2B in Q1 2021, and trailing-twelve-month free cash flow was $(18.6)B.

Red flag

Net loss of $(3.8)B was driven in part by a $7.6B non-cash marketable equity securities valuation loss on the Rivian investment.

Red flag

Inventory valuation allowance was $2.5B as of March 31, 2022, and the filing states every 1% of additional inventory valuation allowance would have added approximately $390M of cost of sales.

Value Drivers & Capital Allocation

Capital returned — share repurchases $2.7B; capital expenditures $15.0B (prior $12.1B) (selected cash-flow amount, not necessarily total capital investment).

Financing cash flow for 2022-01-01 to 2022-03-31 was an inflow of $1,990,000,000, compared with an outflow of $3,476,000,000 for 2021-01-01 to 2021-03-31. Net financing changed from an outflow to an inflow.

“In March 2022, the Board of Directors authorized a program to repurchase up to $10.0 billion of our common stock, with no fixed expiration, which replaced the previous $5.0 billion stock repurchase authorization, approved by the Board of Directors in February 2016.”

— Filing statement

Period net income attributable to the parent / period-end equity, not annualized: -2.9% (prior at 2021-03-31: 7.8%); period net income attributable to the parent / period-end assets, not annualized: -0.9%.

Forward Signals

cautious

Second Quarter 2022 Guidance: Net sales are expected to be between $116.0 billion and $121.0 billion, or to grow between 3% and 7% compared with second quarter 2021, anticipating an unfavorable impact of approximately 200 basis points from foreign exchange rates; operating income (loss) is expected to be between $(1.0) billion and $3.0 billion, compared with $7.7 billion in second quarter 2021; the guidance assumes that Prime Day occurs in third quarter 2022 and that no additional business acquisitions, restructurings, or legal settlements are concluded.

Known trends

  • The factors described above contributed to a deceleration in our net sales growth rate and increases in our operating costs during Q1 2022, particularly across our North America and International segments, due to increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies resulting from constrained labor markets and global supply chain constraints.
  • We expect some or all of these factors to continue to impact our operations into Q2 2022.

Subsequent events

  • We issued $12.8 billion of notes in April 2022 for general corporate purposes with maturities between 2024 and 2062, stated interest rates between 2.73% and 4.10%, and effective interest rates between 2.83% and 4.15%.

“We expect some or all of these factors to continue to impact our operations into Q2 2022.”

— Amazon.com, Inc. (Item 2. MD&A - Overview)

“Net sales are expected to be between $116.0 billion and $121.0 billion, or to grow between 3% and 7% compared with second quarter 2021.”

— Amazon.com, Inc. (Item 2. MD&A - Guidance)

Risks

Excerpts are the filing’s own words; each heading is the start of its excerpt. Selected excerpts are not a complete risk inventory.

  • The complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages…

    The complaints seek billions of dollars of alleged actual damages, treble damages, punitive damages, and injunctive relief.

  • As a measure of sensitivity, for every 1% of additional inventory valuation allowance…

    As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of March 31, 2022, we would have recorded an additional cost of sales of approximately $390 million.

2 of 4 excerpts located in the filing text · 2 withheld because the evidence could not be matched

Segments

SegmentRevenueOperating IncomeRevenue ChangeCommentary
North America$69.2B$-1.6B+7.6%The North America operating loss is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased wage rates and incentives, increased transportation costs, and fulfillment network inefficiencies, and growth in certain operating expenses, partially offset by increased unit sales by third-party sellers and advertising sales.
International$28.8B$-1.3B-6.2%The International operating loss is primarily due to increased shipping and fulfillment costs, decreased unit sales, and growth in certain operating expenses, partially offset by increased advertising sales; changes in foreign currency exchange rates impacted International net sales by $(1.8)B.
AWS$18.4B$6.5B+36.6%The increase in AWS operating income is primarily due to increased customer usage and cost structure productivity, including a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment, partially offset by increased spending on technology infrastructure and payroll and related expenses, and reduced prices for our customers.

Balance Sheet & Liquidity

Leverage: Identified debt as of 2022-03-31 (carrying amount): long-term debt including current maturities of $50.6B; noncurrent long-term debt of $47.6B; current portion of long-term debt of $2.7B. Not separately reported in this filing's standardized data: short-term borrowings. Total debt, net debt and debt-to-equity are therefore not stated.

Liquidity: Cash, cash equivalents, and marketable securities at fair value were $66.4B as of March 31, 2022, down from $96.0B at December 31, 2021; the company had no borrowings under the $10.0B Credit Agreement, $10.8B of commercial paper borrowings, $803M under the Credit Facility, and $10.2B of unused letters of credit.

Cash flow: Cash flow — operating $-2.8B, investing $906.0M, financing $2.0B.

Working capital: Current assets $133.9B vs. current liabilities $139.5B (current ratio 0.96x). Prior reported balance sheet as of 2021-12-31: $161.6B vs. $142.3B (1.14x).

Maturities & covenants

  • We are not subject to any financial covenants under the Notes.
  • Total long-term debt principal and interest commitments were $74.5B as of March 31, 2022, including $2.6B due in the nine months ending December 31, 2022.

Notable Footnotes

ItemImpact
Change in estimated useful lives of servers and networking equipmentEffective January 1, 2022, the useful life of servers changed from four to five years and networking equipment from five to six years, reducing depreciation and amortization expense by $973M and benefiting net loss by $769M, or $1.51 per basic and diluted share.
MGM Holdings Inc. acquisitionOn March 17, 2022, Amazon acquired MGM for cash consideration of approximately $6.1B, net of cash acquired, and assumed $2.5B of debt that it repaid immediately after closing; acquired assets primarily consist of $3.4B of video content and $4.9B of goodwill.
Rivian equity investmentAmazon held 158 million shares of Rivian Class A common stock (approximately 18% ownership and 16% voting interest) with a fair value of $8.0B as of March 31, 2022, down from $15.6B at December 31, 2021; a $7.6B valuation loss was recorded in Q1 2022.
AWS performance obligationsCommitments not yet recognized for contracts with original terms exceeding one year were $88.9B as of March 31, 2022, with a weighted-average remaining life of 3.8 years.

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