Big Tech, Amazon Earnings & Outlook
Big tech companies reported third-quarter earnings this week. Compared to the financial sector (big bank, major tech companies reported earnings and revenues that missed expectations.
For instance, Amazon reported weaker-than-expected results for the third quarter, including earnings drop of nearly 50%, and delivered disappointing guidance for the critical holiday period, leading its shares to drop more than 4% in extended trading on Thursday. Meanwhile, Apple missed revenue expectations for the first time since late 2018, due to slower-than-expected sales of iPhones and wearables. The dismal results are attributed to supply chain disruptions and semiconductor shortages.
Amazon Earnings
Amazon shares dropped more than 4% in extended trading on Thursday after the company reported weaker-than-expected results for the third quarter and delivered disappointing guidance for the critical holiday period.
- Revenue: Amazon posted third-quarter sales that grew 15% over last year to $110.8 billion, coming in short of the $111.8 billion expected, based on Bloomberg consensus data.
- For the first time in its history, revenue from Amazon services surpassed its retail sales. Net product sales were $54.9 billion in the quarter, while revenue from Amazon Web Services, advertising, third-party seller services, and Prime subscriptions added up to $55.9 billion.
- Amazon Web Services topped estimates, with revenue jumping 39% to $16.11 billion, while analysts expected sales of $15.48 billion. AWS generated $4.88 billion in operating income in the period while operating profit at the parent company was just $880 million.
- Without the hefty profit from AWS, Amazon would have recorded a loss for the quarter.
- Earnings: Earnings per share halved over last year to come in at $6.12, and operating income fell to $4.9 billion from $6.2 billion in the year-ago period.
- Challenges: Amazon is reckoning with decelerating sales growth as consumers go back to physical stores and the company faces supply chain challenges. Revenue in the third quarter rose 15%, down from 37% growth in the same period a year ago.
- Guidance: For the fourth quarter, Amazon forecast sales between $130 billion and $140 billion, representing growth between 4% and 12%. Analysts surveyed by FactSet were expecting revenue to rise 13.2% year-over-year to $142.1 billion. Amazon said its operating profit in the fourth quarter will be in the range of $0 and $3 billion. That’s a significant step down from its operating profit of $6.9 billion in the year-ago period.
- Amazon CEO Andy Jassy said the company expects to take on “several billion dollars” of extra costs in its consumer business in the fourth quarter as a result of labor shortages, higher employee costs, global supply chain constraints, and increased freight and shipping costs. Amazon is navigating these challenges as it enters the peak holiday season, he said.
- The company has taken steps to shore up its supply chain amid the global challenges, by adding new shipping ports and boosting its fleet of planes and trucks. Amazon said earlier this month it plans to hire 275,000 permanent and seasonal employees nationwide, in part to help deal with the holiday shopping season.
How did Amazon stock perform?
Amazon shares dropped more than 4% in extended trading on Thursday following the release of the results. The stock was trading at $3,349.85 at the time of writing – mid-day on Friday.
Should I buy Amazon shares?
The current consensus among 52 polled investment analysts is to buy stock in Amazon.com Inc. The 44 analysts offering 12-month price forecasts for Amazon.com Inc have a median target of 4,010.00, with a high estimate of 5,000.00 and a low estimate of 3,775.00. The median estimate represents a +19.70% increase from the last price of 3,350.18.