ii view: Amazon shares fall sharply

Shares for this global retailing giant have suffered a tough year so far. Buy, sell, or hold? 

Third-quarter results to 30 September 

• Net sales up by 15% to $127.1 billion (£110.6 billion) year-over-year
• Net income down 9% to $2.9 billion
• Earnings per share down 9% to $0.28 

Guidance:

• Expects Q4 sales of between $140 billion and $148 billion, giving year-over-year growth of 2% to 8%
• Expects operating income of $0 to $4 billion compared with $3.5 billion in Q4 2021

Chief executive Andy Jassy said: 

“In the past four months, employees across our consumer businesses have worked relentlessly to put together compelling Prime Member Deal Events with our eighth annual Prime Day and the brand new Prime Early Access Sale in early October. 

“The customer response to both events was quite positive, and it’s clear that particularly during these uncertain economic times, customers appreciate Amazon’s continued focus on value and convenience.” 

ii round-up:

Online retail mammoth Amazon (NASDAQ:AMZN) detailed both sales and expectations for the next quarter, which missed Wall Street hopes. 

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Sales for the third quarter to the end of September of $127.1 billion proved marginally shy of forecasts nearer to $127.5 billion. Expected sales for the fourth quarter of between $140 billion to $148 billion also fell short of predictions at around $155 billion, with a forecast profit of up to $4 billion shy of estimates at around $5 billion. 

Amazon shares tumbled by more than 10% in after-hour US trading having come into this latest announcement already down by around a third year-to-date. Shares for selling site eBay (NASDAQ:EBAY) are down by around 40% during 2022, while shares for Chinese online retailer Alibaba (NYSE:BABA) have fallen by nearer to 45%.

Amazon earnings fell 9% year-over-year to $0.28 per share, above analyst forecasts for of $0.22 per share, aided by a $1.1 billion gain for its shareholding in Rivian Automotive (NASDAQ:RIVN), although hindered by rising costs.

Sales for its cloud data or Amazon Web Services (AWS) business rose 27% year-over-year to $20.5 billion, but missed Wall Street forecasts of over $21 billion. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares following the results, although downgraded its fair value estimate to $140 per share from a previous $175. 

ii view:

Amazon has given investors the chance to buy into a retail revolution. Its diversification into other business areas now include streaming service Prime, competing with the likes of Netflix Inc (NASDAQ:NFLX) and Disney (NYSE:DIS). Devices such as it Fire tablet and Alexa speakers, leave it competing with the likes of Apple (NASDAQ:AAPL), and its cloud data AWS business, which now goes toe to toe with industry rivals Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL). Third-quarter revenue of over $20 billion leaves AWS as a sizeable business in its own right.   

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For investors, a highly uncertain economic outlook, including a cost-of-living crisis for consumers globally, overshadows the business. Costs for businesses generally have been rising, while government concerns about the growing dominance of tech giants is not to be forgotten. 

On the upside, its core retail business is now also accompanied by significant other businesses, all of which enjoy wide geographical diversity. Management initiatives to reduce or contain costs are now being pursued, while the previous upping of its Prime membership fee should be helping to counter elevated costs. 

On balance, and while some caution looks sensible, Amazon remains the retailer to beat, with grounds for longer-term optimism persisting. 

Positives

• Dominant position in online retailing
• The Amazon Web Services (AWS) business is now a major global player

Negatives

• The threat of increased regulation across many of its markets
• Currency movements can hinder performance

The average rating of stock market analysts:

Strong buy