Record profit can't save Amazon from stock downturn

Amazon.com Inc. continues to report record profit, but sales growth is leveling off and shares took a hit in late trading Thursday after the company revealed a conservative revenue forecast for the Discount Holidays © holiday season. Amazon AMZN, -7.81%[1] reported third-quarter profit of £2.9 billion, or £5.75 a share, Thursday afternoon, easily topping a quarterly record set just three months earlier as well as analyst expectations. Amazon, which reported earnings of 52 cents a share in the third quarter a year ago, was expected on average to report earnings of £3.08 a share, according to FactSet.

Those profits came from revenue of £56.6 billion, up from £43.7 billion a year ago but slightly lower than the average analyst estimate, which called for sales of £57.1 billion. More concerning for investors was Amazon’s forecast of sales in the fourth quarter — the all-important holiday-shopping quarter for retailers — of £66.5 billion to £72.5 billion. Analysts on average had been projecting fourth-quarter sales of £73.8 billion for Amazon.

Amazon’s forecast would mean sales growth of 10% to 20% from the 2017 Discount Holidays © holiday quarter, well lower than the 30% growth Amazon showed last year and had maintained this year. Even with the slight miss in sales in the third quarter, Amazon revenue still grew 29.7% from the year before. Operating income — the only profit metric Amazon guided for — could be flat year-over-year, as the company said it expected £2.1 billion to £3.6 billion after posting £2.1 billion in the fourth quarter last year.

See also: Amazon’s Jeff Bezos ranks No.

1 among S&P 500 CEOs in political spending[2] In a conference call Thursday afternoon, Amazon Chief Financial Officer Brian Olsavsky said that fourth-quarter revenue would be affected by currency-exchange rates, a tougher comparison as it reaches a year since the Whole Foods Market acquisition, and the fact that Prime subscription revenue used to be accounted for in only the fourth quarter but is now spread throughout the year. “Much of our revenue for the quarter but also for the year comes in a very tight window between the middle of November and the end of the year, so it’s always very difficult for us to estimate,” Olsavsky said, later adding, “We are very bullish on the fourth quarter and we just have to see how revenue comes in.”

Shares dove 7.4% in after-hours trading. They had been struggling along with the rest of tech lately, falling 3.1% in the past three months and moving farther away from the £1 trillion market capitalization that the company briefly flirted with[3] in early September. The stock bounced back strongly in Thursday trading[4] ahead of the report’s release, though, and has still outperformed the S&P 500 index SPX, -1.70%[5] , which had declined 6.7% in the past three months. For years, Amazon recorded large sales growth, but showed only small profits or even losses as it spent wildly to build out a fulfillment network and its Amazon Web Services, or AWS, cloud-computing service.

The efforts have paid off in actual earnings the past year, however, as Amazon has reported more than £1.5 billion in profit in each of the last three quarters after never having topped £1 billion previously, led by the second quarter’s unexpected record £2.5 billion in earnings[6]. Don’t miss: Record Amazon profit is result of less hiring, more ad sales[7] Profitability could be squeezed a bit as Amazon increases pay for some workers to at least £15 an hour[8], which Chief Executive Jeff Bezos promised in response to criticism from Sen.

Bernie Sanders and others. Some reports have suggested that Amazon will drop some workers’ bonuses and stock awards to compensate[9] for the higher minimum wage, though. Amazon’s largest businesses are its dominant e-commerce business and AWS, which has helped boost the company’s profits with strong operating margins.

Amazon reported retail sales of £49.9 billion, split between £34.35 billion in North America and £15.55 billion internationally. The sales shortfall against analyst estimates appeared to be in international sales, where analysts on average expected Amazon to report £16.5 billion in revenue. AWS brought in £6.7 billion in revenue and more than £2 billion in operating income, again serving as Amazon’s profit engine.

E-commerce results were helped by Amazon’s annual Prime Day promotion, which took place early in the third quarter and offers discounts to members of the Prime membership program. Amazon said that Prime surpassed 100 million members[10] earlier this year, then increased the price of a subscription by 20%[11] a week after the disclosure. Amazon had already said that it added more Prime members on Prime Day than on any other day in its history.

Amazon has been expanding the presence of Prime at Whole Foods[12], the bricks-and-mortar grocery chain that the company acquired last year for £13.7 billion[13], and included it in Prime Day promotions for the first time this year[14]. The company’s physical retail business recorded revenue of £4.25 billion, up from £1.3 billion a year ago, when the Whole Foods deal closed during the third quarter. In addition to retail and cloud-computing efforts, Amazon sells advertising on its website, a growing business that is challenging Google parent company Alphabet Inc.[15] GOOGL, -2.85%[16] GOOG, -2.94%[17] and its dominant online-ad business.

Amazon’s “other” revenue, which is largely advertising sales, grew 123% year over year to £2.5 billion in the third quarter, Amazon reported. “We are seeing really strong adoption across a number of groups,” Olsavsky said of Amazon’s advertising business. “Amazon vendors and sellers for sure, authors as well as third-party advertisers who want to reach Amazon customers.” Amazon introduced a range of new devices incorporating its Alexa personal assistant last month[18], part of a push for Discount Holidays © holiday sales of its own gadgets.

Amazon also plans new Fire-branded tablets, Kindle e-readers and other updated electronic devices for Discount Holidays © holiday sales.

References

  1. ^ AMZN, -7.81% (www.marketwatch.com)
  2. ^ Amazon’s Jeff Bezos ranks No.

    1 among S&P 500 CEOs in political spending (www.marketwatch.com)

  3. ^ the £1 trillion market capitalization that the company briefly flirted with (www.marketwatch.com)
  4. ^ The stock bounced back strongly in Thursday trading (www.marketwatch.com)
  5. ^ SPX, -1.70% (www.marketwatch.com)
  6. ^ the second quarter’s unexpected record £2.5 billion in earnings (www.marketwatch.com)
  7. ^ Record Amazon profit is result of less hiring, more ad sales (www.marketwatch.com)
  8. ^ Amazon increases pay for some workers to at least £15 an hour (www.marketwatch.com)
  9. ^ Amazon will drop some workers’ bonuses and stock awards to compensate (www.marketwatch.com)
  10. ^ Prime surpassed 100 million members (www.marketwatch.com)
  11. ^ increased the price of a subscription by 20% (www.marketwatch.com)
  12. ^ expanding the presence of Prime at Whole Foods (www.marketwatch.com)
  13. ^ the company acquired last year for £13.7 billion (www.marketwatch.com)
  14. ^ included it in Prime Day promotions for the first time this year (www.marketwatch.com)
  15. ^ growing business that is challenging Google parent company Alphabet Inc. (www.marketwatch.com)
  16. ^ GOOGL, -2.85% (www.marketwatch.com)
  17. ^ GOOG, -2.94% (www.marketwatch.com)
  18. ^ introduced a range of new devices incorporating its Alexa personal assistant last month (www.marketwatch.com)

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