Amazon reported weaker-than-anticipated third-quarter earnings and revenue on Thursday and provided a poor sales outlook for the fourth quarter.
If the slide continues on Friday, it would be the stock's largest decrease since 2006, as it fell as much as 12% in extended trading.
- Earnings: 28 cents per share
- Revenue: $127.10 billion vs. $127.46 billion, according to Refinitiv estimates
The results of the other significant Amazon segments for the quarter are as follows:
- Amazon Web Services: $20.5 billion vs. $21.1 billion expected, according to StreetAccount
- Advertising: $9.55 billion vs. $9.48 billion expected, according to StreetAccount
According to Amazon, it anticipates fourth-quarter revenue to be between $140 billion and $148 billion, up 2% to 8% from the same period last year. Refinitiv reports that analysts were anticipating sales to total $155.15 billion.
Although sales growth was back in the double digits in the third quarter with a 15% increase in revenue, Wall Street's expectations were not met.
Amazon has had a difficult year thus far, much like the rest of Big Tech, as it deals with macroeconomic challenges, skyrocketing inflation, and rising interest rates. These difficulties came at the same time as a downturn in Amazon's main retail business as customers started going back to physical locations to shop.
It's the second time this year that Amazon's numbers have been so bad that they've caused a selloff to reach double-digit percentages. A subpar second-quarter projection in April caused the stock to decline by 14%.
Amazon has recently aggressively slashed costs across several sectors as a response to growing costs under CEO Andy Jassy, who succeeded founder Jeff Bezos in July 2021. It reduced warehouse space, put a stop to a few experimental projects, shut down its telemedicine program, and put a recruiting freeze on corporate positions for its retail division.
In the news release, Jassy stated that "the macroeconomic climate is definitely quite active." "And we'll balance our investments to be more efficient without sacrificing our important long-term, strategic bets," the statement continued.
The business invested extensively during the previous two years on things like expanding its fulfillment and logistics network to satisfy pandemic-related demand, according to Amazon CFO Brian Olsavsky, who said the company had reduced its capital expenditures budget for this year by a third.
In order to "tighten our belt," the corporation is currently winding down goods and services where it believes its resources would be better used elsewhere, according to Olsavsky.
Olsavsky claimed that because of the "Ukraine war and the energy crisis difficulties have actually exacerbated in that geography," the economic climate in Europe was worse in the third quarter than in North America.
The dismal fourth-quarter sales prediction provided by Amazon does not augur well for the holiday shopping season. With Adobe predicting that online sales would only climb by 2.5% this season, analysts are already bracing themselves for a lackluster campaign.
This month's Amazon Prime Early Access Sale may have boosted year-end sales. The event may have been underwhelming, according to data gathered by independent analysts, as consumers feel the effects of inflation. In the press announcement, Jassy stated that customer feedback on the new discount event and Prime Day, which were both held in July, was "very favorable."
A terrible earnings week for Big Tech is coming to a close with Amazon. As they manage difficulties in the digital advertising business, Alphabet and Facebook's parent company Meta both reported results that fell short of estimates. Microsoft wasn't exempt either, delivering a weaker-than-expected quarterly outlook and softer-than-expected cloud revenue.
Apple, which also released financial results on Thursday, outperformed in terms of profitability and sales, but lagged behind in key product categories including the iPhone market and the services division. After hours, the stock is trading at a loss.
At Amazon, operating income dropped to $2.53 billion from $4.85 billion, roughly half of the previous year. The cloud division's operating income of $5.4 billion came entirely from Amazon Web Services, plus a little extra. However, since Amazon started releasing separate earnings for the segment in 2014, AWS has seen the worst revenue growth.
One encouraging aspect of the results was Amazon's advertising division, which defied the trend of its digital advertising rivals Facebook, Google, and Snap, whose ad operations have suffered as a result of the economy and Apple's iOS privacy regulations last year. During the quarter, ad revenue increased 25% year over year to $9.55 billion, easily above analysts' projections of $9.48 billion.
Due to Amazon's sizable investment in electric car manufacturer Rivian, which went public late last year, analysts have used various techniques to their predictions of earnings per share. In the third quarter, Amazon reported a net income of $2.9 billion, which included a gain of $1.1 billion from its Rivian holding in non-operating income.
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