Amazon drops on revenue and guidance miss

By Eugene Kim

Amazon's third-quarter earnings beat Street estimates, but its revenue and fourth-quarter outlook fell short of expectations, dropping its stock roughly 9 percent in after-hours trading — on pace for its lowest close since May.

Here are the most important numbers:

  • EPS: $5.75 vs. $3.14 estimated, according to Refinitiv
  • Revenue: $56.6 billion vs. $57.10 billion estimated, according to Refinitiv
  • AWS revenue: $6.7 billion vs. $6.7 billion estimated, according to FactSet

The results highlight the growth of Amazon's high-margin businesses, like its cloud and advertising units, that are more profitable than its core retail segment. At the same time, it shows Amazon's revenue growth may be slightly decelerating after years of rapid expansion.

The company gave fourth-quarter revenue guidance in the range of $66.5 billion and $72.5 billion, well-below consensus of $73.79 billion. The fourth quarter is the biggest and most important sales period for Amazon because of the holidays.

Its fourth-quarter operating income guidance of $2.1 billion to $3.6 billion was also below Street expectations of $3.9 billion. Amazon said the wage increase announced earlier this month was incorporated into the guidance.

Total revenue increased 29 percent from last year. North American sales were $34.3 billion, up 35 percent from last year, while international sales grew just 13 percent to $15.5 billion. AWS continued to show strong growth, jumping 46 percent in sales. Amazon's "other" category, mostly comprised of its burgeoning advertising business, jumped 123 percent to $2.5 billion in revenue.

Net income, meanwhile, grew more than 10-times from the year-ago period, to $2.8 billion, marking the fourth straight quarter of topping $1 billion in profits. The $3.7 billion in operating income far-exceeded Street estimates of $2.1 billion. The widening profits are largely driven by the growth of Amazon's high-margin businesses, including its cloud, advertising and third-party seller services.

"We were particularly impressed by the continued YoY operating margin expansion, which is consistent with our view the company has transformed into a 'profit machine,' driven by multiple tailwinds (most notably AWS, which posted an over 30% operating margin for the first time)," Loop Capital's Anthony Chukumba said in a note published on Thursday.

In a prepared statement, Amazon CEO Jeff Bezos highlighted the growth of Amazon Business, its marketplace for business customers.

"Amazon Business has now reached a $10 billion annual sales run rate and is serving millions of private and public-sector organizations in eight countries," Bezos said in a statement.

Amazon's quarterly report comes amid a broader market sell-off that saw other tech stocks get hammered in recent weeks. Amazon stock is up roughly 49 percent this year.