Amazon issues light Q2 forecast amid tariff headwinds

The news: Amazon had a strong Q1, buoyed by healthy growth for its North America retail business as well as better-than-expected advertising sales.

But as has been the trend this earnings season, parts of the retailer’s guidance fell short of expectations—yet another sign of how uncertainty is wreaking havoc with companies’ ability to plan for the future.

• Amazon expects net sales of between $159 billion and $164 billion, or 7% to 11% growth, for the current quarter. That’s roughly in line with the FactSet consensus estimate of 8.9% growth.
• Operating income is forecast to be $13 billion to $17.5 billion—an incredibly large range that spans an 11.6% decline to a 19% gain, and that comes in below the $17.62 billion analysts expected.

What it means: Amazon’s earnings are a window into its strategy for navigating tariffs and economic uncertainty. In many ways, it’s business as usual for now.

• Fast delivery remains a priority. Over the past several quarters, the retailer has repeatedly emphasized how effective speeding up delivery has been at increasing order frequency, basket size, and the range of items in customers’ consideration set. It’s hoping to continue that momentum with a $4 billion investment in its rural fulfillment network, which it expects will halve delivery times and make its services stickier for more consumers.
• Amazon’s sales calendar is packed. The retailer is relying more than ever on a slate of promotional events to convince shoppers of its ability to offer value. This month alone, Amazon is running its (misnamed) Summer Beauty Event, Pet Day sale, and Gaming Week promotions. It also plans to double the length of Prime Day, which will give consumers more opportunities to find deals as well as generate more ad revenues.
• It’s squeezing as much revenue as it can from its ad business. Ad revenues grew 18% in Q1, driven by strong demand for sponsored ads on its marketplace as well as growing interest in Prime Video ads.

The headwinds: Amazon is trying to control the controllables, but little about the current situation is precedented or predictable. The retailer learned that lesson the hard way this week, after a report that it was considering listing the impact of tariffs on prices for its Haul marketplace—a practice that several of its competitors have already implemented—earned it a tongue-lashing from the White House.

The intense scrutiny from the Trump administration only makes Amazon’s job harder as it struggles to contend with a slew of other tariff-related headwinds.

• Amazon and its sellers are highly dependent on goods from China. In addition to pushing up operating costs, that will mean price hikes for consumers—some of which are already filtering through as third-party sellers take action.
• Higher prices will make already-cautious consumers even more wary about nonessential purchases, and could send them fleeing to retailers like Walmart that can offer more value.
• Even Amazon’s flagship Prime Day event could be affected as sellers consider whether to minimize discounting, cut ad spending, or even sit out the sale entirely.
• That could be a warning sign for Amazon’s retail business writ large, given how reliant it is on revenues from third-party services like fulfillment and advertising.

Our take: Amazon’s bullish sales forecast for the quarter shows that it’s confident in its ability to offer value to customers, on both the pricing and convenience fronts. But the retailer is highly exposed to the tariffs on China, which in addition to driving up costs could weigh on high-margin businesses like advertising and third-party seller services. That could complicate its ability to keep prices low, opening the door for competitors like Walmart.

Go further: Check out our US Amazon Ecommerce Forecast, as well as our latest reports on the Impact of Tariffs on US Businesses and The First 100 Days of Trump.