Amazon.com Inc. predicted Thursday that holiday sales and profits will be much lower than analysts’ expectations as cloud growth slows and AWS profits miss near-term expectations. $1 billion, sending shares south in after-hours trading.
Amazon
AMZN,
reported third-quarter profit of $2.87 billion, or 28 cents a share, down from 31 cents a share in the previous quarter after adjusting for Amazon’s 20 to 1 stock split. Revenue rose to $127.1 billion from $110.8 billion, in the middle of executives’ forecasts of $125 billion to $130 billion but slightly falling short of analyst expectations; executives say revenue would be $5 billion higher if it weren’t for the impact of a stronger dollar.
According to FactSet, earnings analysts expect an average of 22 cents a share on revenue of $127.39 billion. Shares at one point fell more than 20% in after-hours trading shortly after the announcement, after closing down 4.1% at $110.96.
“Clearly there is a lot going on in the macroeconomic environment and we will balance our investments to be more sensible without affecting our key long-term, strategic bets. ,” CEO Andy Jassy said in a statement. “What won’t change is our intense focus on customer experience, and we feel confident we’re ready to deliver a great customer experience this holiday shopping season.”
Amazon reported a quarterly loss for the first half of the year, largely due to the rapid post-IPO decline in one of its investments, Rivian Automotive Inc.
RIVN,
But the Seattle-based company also looking for ways to cut costs after spending lavishly during the first two years of the COVID-19 pandemic to keep up with the spike in demand for Amazon Web Services’ online store and cloud products.
Amazon stock has faced comparisons to the early days of last year and will do so again this holiday season, when it faces Compare that to the nearly $12 billion return from its Rivian investment, has fallen more than 50% from the IPO price and stands at almost 1/5 of the highest post-IPO price. In Thursday’s report, Amazon oriented fourth-quarter operating profit to breakeven to $4 billion and holiday revenue to $140 billion to $148 billion, while analysts on average expected earnings to fall. operating income was $5.05 billion on revenue of $155.09 billion, according to FactSet.
There are suggestions that Amazon will be cautious with its holiday forecasts, as its cost-cutting efforts are imperative to keeping its massive logistics operation running smoothly. The company is looking to hire 150,000 workers to get through the holiday season and recently announced a pay rise for workers who get the job done.
“According to our Q4 consensus estimate, we believe AMZN may be wrong to be more cautious, given the uncertain consumer spending environment,” MKM Partners CEO Rohit Kulkarni wrote in a note. note. “We believe the recently announced salary increase, higher short-term asset amortization costs (NFL & Lord of the Rings) and potentially larger merchandise discounts could impact the Margin. profit for 4 quarters.”
Amazon’s e-commerce activity was boosted in the third quarter thanks to the company’s annual Prime Day event in July, and the company tried to replicate the event in October, but analysts say a second Prime Day is less successful and is likely a sign of weakness.
“We see Amazon’s decision to hold two Prime Day sales in a calendar year as a red flag for weak e-commerce sales; All in all, that suits retailers, keeping more sales when their sales come under pressure,” wrote DA Davidson analyst Tom Forte in a preview of the Amazon report.
In the third quarter – with back-to-school sales and the first Prime Day event – quarterly retail sales in North America hit $78.84 billion, while overseas sales hit $27.72 billion. la. Analysts’ average expectations are $77.24 billion and $29 billion, respectively, according to FactSet. Sales in both locations were unprofitable from the operating side for the fourth consecutive quarter, losing $2.88 billion in total.
Amazon’s profits largely come from the high margins of its AWS cloud computing offering, but there have been concerns about slowing growth for the cloud after rival Microsoft Corp.
MSFT,
reported a deceleration earlier this week and led to a continued decline in growth in the fourth quarter. Amazon reported AWS sales of $20.54 billion, up 27.5% year-over-year and below the average analyst estimate of $21.2 billion; Operating income of $5.4 billion offset the loss of e-commerce, but missed the median analyst estimate of $6.37 billion, according to FactSet.
Idea: The cloud boom is coming back to Earth, and that could be scary for tech stocks
Amazon’s other more profitable business is advertising, which has flourished in recent years as companies looking to sell products on Amazon pay the company to list their products higher. when consumers search for them on e-commerce platforms. Amazon reported third-quarter ad revenue of $9.55 billion, up from $7.61 billion a year ago and topping analysts’ median estimate of $9.48 billion.
Amazon stock is down 33.5% so far this year, driven by the S&P 500
SPX,
fell 19.6%.
