Amazon Shares Plunge After Mixed Q3 Earnings Report

^{Source: Predictions based on analysts' consensus from Visible Alpha}

Amazon (AMZN) Financial Results: Analysis

Shares of Amazon.com, Inc. (AMZN), the largest U.S. ecommerce retailer, lost a fifth of their value in extended trading after the company posted mixed financial results. Total revenue and revenue for Amazon Web Services (AWS) came in below predictions, and Amazon anticipated lackluster holiday sales during the fourth quarter as consumers rein in their spending in response to the precarious economic environment.

Although the market appeared to focus on growth concerns, there was at least one bright spot in the earnings release, as Amazon reported better-than-expected profits for the third quarter, driven by a $1.1 billion valuation gain in its investment in Rivian Automotive Inc. (RIVN). Amazon posted earnings per share (EPS) of $0.28 compared with a consensus estimate of $0.22. This follows two consecutive quarters of losses. However, revenue climbing by 15% to $127.1 billion was not enough to meet expectations, as declining international sales and unfavorable foreign exchange rates partially offset increases in North American e-commerce business.

Inflation, a broader economic slowdown, and fear of a recession have hampered consumer discretionary spending at retailers such as Amazon, while the company also faces headwinds from a strong dollar and supply chain disruptions. Offsetting such challenges are a strong distribution infrastructure, growing grocery services business, and Prime Day events. The negative impact to sales for Q3 from foreign exchange rates was $5.0 billion. Amazon's North America segment, not as deeply affected by foreign exchange rates as its international business, saw sales increase by 20%.

AMZN Amazon Web Services (AWS) Revenue

The company's Amazon Web Services (AWS) segment, its high-margin cloud computing business, posted revenue of $20.5 billion, an increase of 27% that was still below the $21.1 billion analysts had predicted. While AWS comprises a relatively small share of overall revenue, it generates a substantial portion of operating income.

AMZN Outlook and Stock Performance

Amazon expects revenue of $140.0 billion to $148.0 billion, representing 2% to 8% growth, for Q4. The company anticipates a significant negative impact from foreign exchange rates for next quarter as well. Operating income is forecast to be between $0 and $4.0 billion.

Shares of Amazon plunged by 19% as of 4:19 p.m. New York time after the fiscal report. Amazon stock has fallen by 28% compared to a 13% drop for the S&P 500 in the past year.

Amazon's next earnings report (for Q4 FY 2022) is expected to be released on Feb. 2, 2023.