After posting subpar earnings on the evening of April 28, Amazon (AMZN) stock is plunging. The company is struggling to maintain its previous sales levels despite the e-commerce boom.
Here’s what’s causing Amazon to lose money, and whether investors should stay tuned for a recovery.
Amazon's earnings fall below the line
Amazon's Q1 2022 earnings fell well below estimates. Analysts predicted the e-commerce giant would report $4.4 billion in profit, but it had a net loss of $3.8 billion. In stark contrast, just a year prior, the company posted $8.1 billion in profit.
Why is Amazon losing money?
According to Amazon, it’s not the e-commerce industry or even Amazon’s marketplace that’s causing the sharp drop in earnings. In fact, it’s an investment Amazon made in the automotive sector, in Rivian Automotive (RIVN).
Amazon first invested $700 million into the electric vehicle (EV) startup in 2019. RIVN stock went public via a special purpose acquisition company (SPAC) late last year, and has since lost nearly 75 percent of its value. Altogether, Amazon has lost a reported $7.6 billion in its Rivian venture so far.
When will Amazon-backed Rivian turn a profit?
Rivian trucks and SUVs have been showing up on the roads slowly but surely. However, the company is still far from profiting.
According to Rivian, about 71,000 North American buyers had preordered its vehicles as of Dec. 15, 2021. While deliveries are taking place in 2022—about 200 per week, according to the company—they're slow and steady. A profit is still out of sight for the foreseeable future because of supply-chain woes. However, the plant is “absolutely making progress,” says Rivian CEO RJ Scaringe.
Amazon isn’t the only public company losing money on Rivian
Another big-name Rivian investor is Ford (F). Like Amazon, Ford lost billions on its Rivian position. Amazon CEO Andy Jassy admits that “the pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” meaning Rivian isn't entirely to blame.
Will AMZN stock recover?
Amazon is a mega-cap blue-chip stock, and its chance of recovery is high. Still, shares were down more than 11 percent in the first hour of trading on April 29, bringing its year-to-date loss to 25.17 percent. This could actually be a buying opportunity for investors seeking long-term gains.
Because of Amazon’s massive presence in the market, it’s unlikely the Rivian investment will be its downfall. Plus, remember that EV brand Tesla didn’t turn a profit until 2021, a full 18 years after Elon Musk founded the company in California. Rivian was founded six years after Tesla in 2009, so it still has some time to get more vehicles on the road and turn a profit before Amazon loses faith.
Whereas Amazon may be struggling to keep up with the pandemic-era e-commerce boom it had in 2020 and 2021, growth at a reasonable pace could be beneficial for investors, too.