“The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth,” said CFO Brian Olsavksy.
Amazon (AMZN) – Get Amazon.com Inc. Report shares slumped sharply lower in pre-market trading after a disappointing holiday revenue forecast and slowing growth in its lucrative Web Services business more than offset better-than-expected third quarter earnings.
Amazon missed Street forecasts for both holiday quarter earnings, which it sees in the region of zero to $4 billion, as well as sales, which were pegged between $40 billion to $148 billion, compared to the Refinitiv forecast of around $155 billion.
For the three months ending in September, Amazon said profits were $2.9 billion, or 28 cents per share, while revenues rose 14.7% from last year to $127.1 billion, just shy of analysts’ estimates of a $127.45 billion tally, even with the extra “Prime Early Access Sale” that was introduced earlier this month.
“The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend,” CFO Brian Olsavksy told investors on a conference call late Thursday.
“As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as the increased foreign currency headwinds, and we expect these impacts to persist throughout the fourth quarter,” he added.
Amazon shares were marked 12.7% lower in pre-market trading to indicate an opening bell price of $96.89 each, extending the stock’s year-to-date decline to around 41% while loping more than $150 billion from it market value.
Amazon Web Services contributed $20.54 billion, rising 27.5% from last year but missing Street forecasts by around $1 billion. Ad sales were also higher, rising 25% to $9.55 billion, while online store sales rose 7% to $78.84 billion.
Olsavksy said Amazon would “as we’ve done at similar times in our history … tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.”
Late last month, Amazon unveiled pay increases for warehouse and transportation workers just days after it added another ‘mini Prime day’ event in October to capture demand from value-focused consumers and focus on members of its Prime program.
Amazon said employees would earn between $16 and $26 per hour, with average starting salaries rising by $1, to $19 per hour, as it gears-up for the peak of the holiday retail season.
Amazon, one of the biggest private employers in the United States, said the pay increases would cost around $1 billion over the next year.
“Though we believe investors were anticipating a slowdown due to macro challenges internationally and growing recession fears in the U.S., we see AWS and retail top-line deceleration and the profit margin miss as the key concerns near term,” said JMP Securities analyst Nicholas Jones, who carries a ‘market outperform’ rating and a $140 price target on the stock.
“Overall, while all of Amazon’s business units are likely exposed to broader macro pressures, we do not view 3Q results or 4Q guidance as thesis changing,” he added. “We see Amazon as a best-in-class internet business that can not only weather the macro storm, but emerge primed to reaccelerate growth.”
