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Amazon third-quarter sales disappoint, shares tumble

Melody Hahm
Senior Writer

Amazon’s (AMZN) third-quarter revenue and fourth-quarter guidance missed expectations, sending shares lower after the market close on Thursday. 

The e-commerce behemoth reported earnings per share of $5.75 on revenue of $56.6 billion. Analysts polled by Bloomberg expected the company to report earnings of $3.14 per share on revenue of $57.07 billion. Revenue from Amazon Web Services, its cloud business, grew 46% to $6.7 billion.

Shares of Amazon continued to plummet Friday morning, by as much as 9.41%.

Forward-looking guidance was also lower than analysts’ expectations. “Net sales are expected to be between $66.5 billion and $72.5 billion, or to grow between 10% and 20% compared with fourth quarter 2017.” Operating income increased to $3.7 billion in the third quarter, compared with $347 million from the same period last year.

Earlier this week, Credit Suisse raised its price target from $2100 to $2400, citing better margins for its e-commerce segment, opportunity for faster-than-expected free cash flow growth because of its advertising segment and a bullish forecast for Amazon Web Services.

Online retail, which includes third-party sellers, private label brands, and Alexa products, makes up more than half of Amazon’s top-line revenue. But its higher-margin cloud service business had $1.6 billion in operating income last quarter, making up 55% of the total.

Its advertising unit has also been a boon for the business, eclipsing Oath and Microsoft to take third place behind Facebook and Google. U.S. advertisers will spend $4.61 billion on Amazon this year, accounting for 4.1% of all digital ad spending in the country, according to market research firm eMarketer.

Jeff Bezos, founder and chief executive officer of Amazon.com Inc., listens during a discussion at the Air Force Association’s Air, Space and Cyber Conference in National Harbor, Maryland, U.S., on Wednesday, Sept. 19, 2018.  (Photo: Andrew Harrer/Bloomberg via Getty Images)

“Comparisons have gotten a bit tougher since Amazon is now cycling the WFM acquisition and 2Q likely received some benefit from a late spring. Similar to the first half, advertising likely remained a driver to margin. Finally, for Amazon Web Services we remain confident that revenue is poised to double to $46B by 2020,” Keybanc analysts wrote in a note to clients.

Earlier this month, Amazon announced it will raise the minimum wage to $15 per hour, which will take effect in November. While it won’t impact Thursday’s report, the company will likely provide guidance for future quarters. Additionally, the proposed 9% to 12% USPS fee increase could cost Amazon more than $1 billion next year, according to Credit Suisse.

Melody Hahm is a reporter at Yahoo Finance.

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