Amazon's income dipped in Q3 2022 as the economy took its toll

Amazon suffered steep losses in year-over-year income as post-pandemic shopping habits and inflation threw the retailer for a loop. In its third quarter 2022 earnings report today, Amazon revealed that operating income decreased to $2.5 billion in Q3 2022 compared to $4.9 billion the same quarter last year, while net income dipped to $2.9 billion versus $3.2 billion during Q3 2021.

Operating income refers to earnings after expenses excepting the cost of debt, taxes and certain one-off items. Net income shows the profit remaining after all costs are subtracted from revenue generated from sales.

Amazon noted an operating loss of $0.4 billion in North America in Q3 2022, an unfavorable outcome compared to the nearly $1 billion in operating income the company achieved the quarter a year ago. Internationally, the tech giant fared worse, notching a $2.5 billion operating loss versus Q3 2021's $900 million loss.

As is usually the case, Amazon Web Services (AWS), Amazon's cloud services division, was a bright spot in an otherwise gloomy quarter. AWS' operating income reached $5.4 billion in Q3 2022 versus $4.9 billion the same quarter last year. That is, however, down from the $5.72 billion in operating income AWS raked in during Q2 2022.

On news of Amazon's Q3 losses, the company's stock dropped ~20% in after-hours trading. That likely also has to do with Amazon's shockingly vague Q4 guidance, which estimates operating income at between $0 and $4 billion compared to $3.5 billion in Q4 2021. No, that's not a typo -- between zero dollars and four billion dollars. My goodness.

"We’re … encouraged by the steady progress we’re making on lowering costs in our stores fulfillment network, and have a set of initiatives that we’re methodically working through that we believe will yield a stronger cost structure for the business moving forward," CEO Andy Jassy said in a press release. "There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets."

Amazon spent billions doubling the size of its fulfillment network during the pandemic -- a move that served it well initially, but which proved to be short sighted. The company was forced to shut down or delay plans for over a dozen facilities as e-commerce sales this year grew slower than expected.

Another headwind -- soaring energy prices -- are beginning to impact Amazon's business in a major way, with the company's spending on shipping climbing 10% to $19.9 billion in Q3 2022.

Tech broadly speaking is faring poorly in the current macroeconomic environment. Microsoft reported its slowest revenue growth in five years this week, while Meta shares dropped precipitously on losses from its investments in augmented and virtual reality technologies. Apple beat Wall Street's estimates but wasn't immune from the downturn, either, with iPhone sales coming in lower than expected.