Two things happened recently. One appears to be a rumor but might be correct. Amazon.com Inc. (NASDAQ: AMZN) was going to raise prices on some of its items and show buyers how much of the increases had to do with tariffs. President Trump called Amazon founder Jeff Bezos and told him he was unhappy about the plan, and then Bezos killed it.
24/7 Wall St. Key Points:
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Tariffs put the profitability of Amazon.com Inc. (NASDAQ: AMZN) at extreme risk.
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Walmart Inc. (NYSE: WMT) raising prices on items imported from China gives Amazon cover to do the same.
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The other was more straightforward. Walmart Inc. (NYSE: WMT) will raise prices on items imported from China. While customers pay more, Walmart will retain its margins. Walmart’s decision gives Amazon “cover” to keep its margins via retail price increases as well.
When Walmart released its earnings, Chief Executive Doug McMillon said, “We will do our best to keep our prices as low as possible but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren’t able to absorb all the pressure.” China makes almost two-thirds of what Walmart said.
Walmart’s past was sold. In the most recent quarter, its revenue was $165.6 billion, up 2.5%. Earnings totaled $0.61 per share on an adjusted basis, up from $0.60 a year ago. The stock traded down slightly.
Most of the investor interest in Amazon has to do with AWS, the largest cloud provider in the world. In the most recent quarter, it had an operating income of $11.5 billion on revenue of $29.3 billion. That was up from an operating profit of $9.4 billion on $25 billion a year ago. AWS is also the part of Amazon most likely to benefit from the tens of billions of dollars it will put into artificial intelligence (AI) server farms.
Amazon’s larger e-commerce business operates on tiny margins. An increase in expenses could wipe out operating income. In the most recent quarter, North American operating income was $5.8 billion on revenue of $92.9 billion. The margins were even worse in its International segment. It posted operating income of $1 billion on revenue of $33.5 billion.
Chinese tariffs put the profitability of Amazon’s largest businesses at extreme risk. Without price increases, there is the threat that these will produce losses.
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