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Amazon's $2 billion loss explained and 4 key takeawas from its earnings

Amazon reported a $2 billion net loss in Q2. That was due to a collapse in the value of its stake in electric vehicle maker Rivian – which cost Amazon $3.9 billion in non-operating expense. That’s a painful figure. A $79 billion sales run rate at a robustly growing AWS takes the sting out of the tail of this loss however.

Here’s 4 key things we learned from the Amazon Q2 earnings call/

Amazon capex is growing and AWS is getting more…

Some 40% of Amazon capex went on AWS last year. In 2022, it expects that to reach more like 50%, or $30+ billion. Why? Simple: ongoing expansion. It plans to launch 24 more “availability zones” across eight regions.

That’s huge pending investment in racks of servers and associated data centre infrastructure coming up in Australia, Canada, India, Israel, New Zealand, Spain, Switzerland and UAE, Amazon’s Q2 earnings showed.

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“For 2022, we expect to spend slightly more on capital investments than last year, but the proportion of capital spending shifts among our businesses. We expect technology infrastructure spend to grow year-over-year, primarily to support the rapid growth in innovation we are seeing with AWS. We expect infrastructure to represent a bit more than half of our total capital investments in 2022” said CFO Brian Olsavsky.

AWS sales for the quarter were $19.7 billion meanwhile.

“AWS continues to grow at a fast pace. We believe we are still in the early stages of enterprise and public sector adoption of the cloud. We see great opportunity to continue to make investments on behalf of AWS customers. We continue to invest thoughtfully in new infrastructure to meet capacity needs” said Olsavsky.

Wait, a $2 billion loss? Talk us through it…

Amazon’s ~20% stake in EV firm Rivian Automotive peaked at $27 billion in November, shortly after Rivian’s IPO. Decreased investor risk appetite has sent Rivian’s shares tumbling. Amazon has taken paper losses on its investment of $11.5 billion in the first two quarters of this year alone. Fellow Rivian backer Ford has also taken a huge loss – reporting $2.4 billion writedown on its investment over the past quarter this week.

Amazon’s investment is now worth about $5 billion.

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It invested for a reason though: EVs – and it’s about to ramp up their use.

“In the US, we've started making customer deliveries using the Rivian electric delivery vehicles. This rollout is the start of what we expect to be thousands of EDVs (electric delivery vehicles) in more than 100 cities by the end of the year and 100,000 vehicles across the US by the year 2030” said Amazon CFO Olsavsky.

Amazon Q2 earnings call shows AWS margins slid

AWS has been a cash cow for Amazon but margins slid this quarter, from 35% to 29%. What’s happening?

Amazon’s CFO Olsavsky told analysts: “The margin rate is going to fluctuate [as a result of] new investment and things like the sales force and new regions and infrastructure capacity offset by infrastructure efficiency gains.”

“We've seen really good progress with our customer base, longer and longer commitments, really committing to the cloud; some of that comes with credits to help them make their conversion to the cloud and so that the revenue pattern can be, and the margin on that revenue can fluctuate quite a bit quarter-to-quarter” he added, saying “ but see a lot of strength in the business right now. We're very happy with the growth rate.”

Progress in tackling inflation

Amazon saw $6 billion of incremental costs in Q1 when compared to Q1 2021 amid rampant inflation, but said it had made “solid progress in reducing these costs” this quarter, keeping them in line with expectations of $4 billion. (This includes pressures from higher fuel, trucking, air and ocean shipping rates.)

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