More Tech Wreckage as Amazon Follows Meta Down After Misses on Revenue and Guides Lower

Retail monster Amazon.com reported weaker September quarter revenue Thursday and lowered guidance sending the shares sharply lower.  Amazon stock was trading at $90.15 -20.81 or -18.75% after the release. The markets were already jittery after the META trainwreck the night before. Amazon recorded a $3.9 billion loss on its Rivian investment which led to a reported a loss of 20 cents per share on revenue of $121.23 billion vs. $119.09 billion expected. Amazon was the last of the mega-cap tech companies to report. Netflix kicked it off. Microsoft, Apple, Intel, Meta and Alphabet followed.

Amazon new CEO Jassy

Amazon.com Inc. (NASDAQ: $AMZN) Reported After Close Thursday

Earnings release: 4:01 p.m.; conference call: 5:30 p.m.

Amazon Q3 22 Earnings:

Here are the key numbers:

  • EPS: $0.28 (exp $0.22)
  • Revenue: $127.1B (exp $127.64B)
  • Operating Income: $2.5B (exp $3.11B)
  • Amazon Web Services: $20.5 billion vs. $21.1 billion expected, according to StreetAccount
  • Advertising: $9.55 billion vs. $9.48 billion expected, according to StreetAccount
  • Sees Q4 Operating Income $0 To $4.0B (exp $4.66B)
  • Sees Q4 Net Sales $140.0B To $148.0B (exp $155.52B)

Stock Market Reaction

Amazon stock was trading at $90.15 -20.81 or -18.75% after the release.

“Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” CEO Andy Jassy said in a statement.

Advertising

Advertising: $9.55 billion vs. $9.48 billion expected, according to StreetAccount

Amazon’s advertising business bucked the trend of its digital ad peers Facebook, Google and Snap, whose ads businesses have been wrecked due to the economic environment and Apple’s iOS privacy changes last year. Ad revenue surged 25% year over year to $9.55 billion during the quarter, which handily topped analysts’ estimates of $9.48 billion.

Rivian

Analysts have taken different approaches to their per-share earnings estimates because of Amazon’s hefty investment in electric-vehicle maker Rivian, which went public late last year. Amazon reported net income of $2.9 billion in the third quarter, which includes a gain of $1.1 billion in the value of its Rivian stake.

The Rivian IPO priced at $78 a share, valuing the company at $66.5 billion. The stock climbed past $172 at its peak, but has since fallen back to about $30. Amazon invested more than $1.3 billion into Rivian, owned 22.4% of the company’s Class A shares prior to the IPO.

Prime

Amazon’s Prime Early Access Sale, held earlier this month, could help pump year-end sales. Data collected by third-party analysts signaled the event may have been lackluster, as shoppers feel the pressure of inflation. Jassy said in the release that customer response to the new discount event, and Prime Day, hosted in July, was “quite positive.”

Amazon has a built-in consumer base of more than 200 million members that is primed to buy more. Members of Amazon’s Prime discount club tend to spend more and order more frequently than non-Prime members, according to market research firm Consumer Intelligence Research Partners.

Amazon said Prime members don’t appear to be ditching their memberships to cut costs in the face of inflation.

“We continue to be pleased with the membership levels and retention in our Prime program,” Olsavsky said. “It was as good or better than we had expected.”

Amazon earlier this year hiked the price of its Prime membership for the first time in four years. The company raised the price of its annual Prime membership to $139 from $119. The cost of the monthly Prime membership increased to $14.99 from $12.99. The price change went into effect for new members on Feb. 18, and for current members after March 25.

American Web Services (AWS)

Amazon said Thursday that revenue growth in its AWS cloud-computing unit slowed in the third quarter to 27.5%, missing analysts’ estimates. This was the slowest expansion since at least 2014, the year Amazon started reporting on the group’s finances.

  • Revenue at AWS came in at $20.5 billion, analysts polled by StreetAccount had expected $21.1 billion.
  • AWS Revenue grew 33% in the second quarter.
  • AWS now contributes 16% of Amazon’s total revenue.
  • AWS operating income was $5.4 billion, less than the StreetAccount consensus of $6.37 billion.
  • Amazon as a whole had $2.53 billion in quarterly operating income.
  • AWS operating margin contracted to 26.3% from 29% in the second quarter.

During the quarter AWS launched its second cloud data center region in the United Arab Emirates, and it announced the availability of “serverless” services that help developers deploy data-analytics tools with minimal server-management work.

Amazon has slowed the pace of hiring in AWS, even as it continues to grow faster than the company’s core e-commerce business. In some parts of AWS, Amazon has met its hiring needs, while in others it has thousands of job openings, an AWS spokesperson told CNBC earlier this week. The comments came as Google and Microsoft also indicated they would reduce headcount growth.

American Web Services (AWS) Background

Amazon launched AWS in 2006 and controlled about 39% of the cloud infrastructure market in 2021, down from 41% in 2020, according to estimates from technology industry researcher Gartner. Google
, Huawei and Microsoft all gained share last year, Gartner said. The industry has seen steady growth as businesses continue to offload their computing and storage to the cloud.

In cloud-computing infrastructure, Amazon has a substantial market share lead over Microsoft Azure, Google’s Cloud platform and IBM, as well as other players like Alibaba and Oracle. Microsoft and Google are currently expanding much faster and picking up share.

AWS architecture

AWS is the envy of Apple, Oracle, Google, IBM and every other niche cloud provider. AWS is the leading platform in this growth market.  Amazon Web Services., Amazon’s cloud business in just ten years has become the fifth-largest business software provider in the world.

Amazon has proven that it can diversify beyond e-commerce whilst at the same time Microsoft, Google, IBM and others are all chasing AWS in the cloud.

AWS is almost twice as big as Salesforce

Outlook

Amazon gave a pessimistic view of the months ahead. Amazon said it expects to post fourth-quarter revenue between $140 billion and $148 billion, representing year-over-year growth of 2% to 8%. Analysts were expecting sales to come in at $155.15 billion, according to Refinitiv.

“There is obviously a lot happening in the macroeconomic environment,” Jassy said in the press release. “And we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

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