(Reuters) – Amazon on Thursday tried to temper investor concerns about the impact of the Trump administration’s tariffs on its e-commerce business, but the company may have few options left to ensure small third-party sellers stay put in the face of crushing levies.
U.S. President Trump has imposed 145% duties on imports from China, a move that has left companies including Amazon, Walmart and Apple scrambling to reassess supply chains and find ways to keep costs down.
Amazon said, “We haven’t seen any attenuation of demand yet,” nor much increase in average selling prices of retail items. There had been some “heightened buying in some categories,” likely indicating third-party sellers were stocking up to mitigate any tariff impact, it said.
But stocking up was only a band aid, analysts said. As shoppers step up purchases to avoid tariff impacts, the company and its sellers may struggle to avoid price increases in the coming months as they blow through inventory and place new orders.
“I can’t imagine that they stocked up on more than six months’ worth of inventory,” said Gil Luria, analyst at D.A. Davidson.
“If we get past the next six months and we’re still as uncertain as we are today … then Amazon will have to take actions that are less palatable. It’s gonna have to let some higher prices flow through, take some lower margins structurally, have to push its merchants to absorb lower margins.”
For Apple and Amazon – and other companies including Qualcomm, Samsung and Intel that are exposed to everyday consumers – tariffs have become the crisis that could set them back in a race against rivals Microsoft and Alphabet’s Google.
Investors pushed Amazon shares down 5% after hours. Apple stock was hit too, as the iPhone maker on Thursday estimated that tariffs would add about $900 million in costs to the quarter ending in June if rates do not change. Apple CEO Tim Cook outlined big changes to the company’s supply chain.
Amazon’s AWS cloud business, which powers its profits, is usually a bulwark against swings in its e-commerce business, but that segment’s performance in the first quarter disappointed the Street after Microsoft’s Azure cloud business well outperformed expectations.
Investors had lofty expectations for the cloud businesses, which were reinforced by Microsoft and Google’s results and raised expectations for Amazon’s AWS, said Will Rhind, CEO of global ETF issuer GraniteShares.
“But I still think this is a great business and it’s still growing,” he said.
PAIN LOOMS LATER THIS YEAR
Amazon’s tariff troubles extend to more than just the big duties. On May 2, the end of de minimis – a trade exemption that allows low-cost merchandise shipped directly to shoppers to enter the U.S. duty-free – is expected to have a big impact on some of the company’s third-party sellers and its Haul business, which ships much of its merchandise from China.
The pullback is already starting to show. Some sellers are already planning to sit out major sales events such as Amazon Prime Day in July, Reuters has reported.
Growth in revenue from Amazon’s third-party seller services more than halved to 7% in the first quarter, excluding the impact of foreign exchange. Third-party seller services account for nearly a quarter of the company’s revenue. And while Amazon forecast total second-quarter sales above Wall Street estimates, its outlook for core profitability fell short.
Amazon CEO Andy Jassy said on a call with analysts that the company was working with its sellers to move orders to the United States earlier to avoid further tariffs on merchandise.
“Our third-party sellers have pulled forward a number of items so they have inventory here as well … we’re encouraging that because we’re trying to keep prices as low as possible,” Jassy said.
He did not say whether Amazon was somehow making it easier for its sellers to keep costs down, or if the company would digest some of the impact itself.
Bob O’Donnell, president and chief analyst at TECHnalysis Research, said: “I think the worst of this is going to hit in Q3 and Q4. Right now, everybody’s playing sort of the short-term game because they don’t really know what else to do.”
(Reporting by Deborah Sophia in Bengaluru and Arriana McLymore in New York City; Editing by Sayantani Ghosh and Sonali Paul)
Comments