Amazon Shares Crater on Weaker Earnings and Soft Guidance

Published on: 25 Oct, 2019

Amazon.com, Inc. (NASDAQ: AMZN) reported its third quarter financial results after the market close on Thursday. Amazon fell short of earnings expectations, which sent shares lower by 7% during extended trading hours.

For the quarter, Amazon reported earnings of USD 4.23 per share on revenue of USD 70 Billion. Refinitiv analysts expected earnings of USD 4.62 per share on revenue of USD 68.8 Billion.

The weaker-than-expected earnings is largely due to Amazon’s heavy investment quarter as the Company spent over USD 800 Million to expand its one-day delivery service. Despite the heavy investments, Amazon reported that revenue increased by 24% year-over-year.

The third quarter includes Amazon’s Prime Day sales, which the Company said it was its biggest shopping event in history. Amazon highlighted that it sold over 175 million products within a 48-hour period.

“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” said Jeff Bezos, Amazon Founder and Chief Executive Officer.

“Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers. And although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfillment centers very close to the customer — it simply becomes impractical to use air or long ground routes. Huge thanks to all the teams helping deliver for customers this holiday,” concluded Bezos.

Amazon Web Service (AWS) reported revenues of USD 9 Billion, falling short of estimates of USD 9.1 Billion. Operating income with AWS totaled USD 2.26 Billion, increasing by 9% year-over-year, but falling short of expectations of USD 2.55 Billion.

For the fourth quarter, Amazon is expecting revenue to be between USD 80 Billion and USD 86.5 Billion, representing an 11% to 20% growth. Operating income is expected to be between USD 1.2 Billion and USD 2.9 Billion, compared to USD 3.8 Billion in the fourth quarter of 2018.

Amazon’s weaker-than-expected guidance hints that holiday sales this year may be softer compared to its previous years.

Following Amazon’s third quarter results, shares are still up 14% this year, below the S&P 500’s 20% gain this year.

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Bryan Shin

Email: Bryan@financialinsiders.com

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