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Amazon Stock Tanks on Earnings Miss, Soft Guidance

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Tech giant Amazon (AMZN) has just reported its earnings results for the third quarter of 2019. The company reported sales of $69.98 billion with adjusted earnings per share (or EPS) of $4.23 for the September quarter.

Analysts expected the company to post revenue of $68.8 billion in the September quarter with adjusted earnings of $4.62. Amazon had forecast third-quarter sales between $66 billion and $70 billion, with operating income between $2.1 billion and $3.1 billion.

In the prior-year quarter, AMZN reported revenue of $56.58 billion and EPS of $5.75. The stock is down 7% at the time of writing after Amazon missed earnings estimates. It also reported a bottom-line year-over-year decline for the first time in two years.

The company reported an operating income of $3.2 billion, which was above its own forecast but lower than the prior-year figure of $3.7 billion. Net income fell from $2.9 billion to $2.1 billion in the same period.

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Amazon forecast sales between $80 billion and $86.5 billion in the holiday quarter, or Q4 of 2019. It expects foreign exchange to impact growth rates by 80 basis points. In the fourth quarter of 2019, Amazon reported sales of $72.38 billion with an operating profit of $3.8 billion. Amazon expects operating profit between $1.2 billion and $2.9 billion in the December quarter.

Analysts expected AMZN to post sales of $87.37 billion. Its lower forecast disappointed investors, driving the stock lower in after-hours trading today.

Did Amazon warn of falling profits?

Investors are wondering if Prime Day sales and one-day shipping drove revenue for Amazon’s e-commerce segment. Amazon’s Prime Day took place in July. And the one-day shipping package was announced in April 2019.

Amazon had then transformed its two-day shipping program to one-day shipping for 100 million Prime customers. It also forecast incremental spending of $800 million in the second quarter and third quarter, which has affected profit margins for this program.

Amazon beat the $800 million figure in the June quarter and might have done the same in Q3. The company’s bottom line would have taken a hit due to higher advertising expenses and shipping costs for the Prime Day and one-day shipping programs.

All eyes on cloud computing

Amazon’s cash cow is Amazon Web Services. But competition from tech heavyweights, including Microsoft (MSFT), Alibaba (BABA), and Google (GOOGL), has decelerated revenue growth in AWS over the last few quarters. AMZN continues to lead the public cloud segment with a share of 47.8%. Meanwhile, MSFT, Alibaba, and Google now account for 15.5%, 7.7%, and 4%, respectively.

Investors estimated AWS sales at $9 billion for the September quarter, according to this report. Amazon has still not provided details of its business segments, which are expected during the earnings call later today.

Amazon stock has underperformed the broader markets over the last 12 months. The stock has returned just under 1% since October 2018, compared to the S&P 500 gains of 11%.

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