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Amazon’s narrower profit triggers $80bn market cap wipeout

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Via Financial Times

Amazon shares dropped 9 per cent in after-hours trading on Thursday, wiping about $80bn from its market value after the ecommerce giant reported lower profits than a year ago and offered conservative guidance for the holiday season.

The Seattle-based group said third-quarter operating income fell to $3.2bn from $3.7bn last year, as spending rose.

Jeff Bezos, chief executive, said Amazon was “ramping up to make our 25th holiday season the best ever for Prime customers”, placing emphasis on its costly programme of one-day delivery on more than 10m items.

“It’s a big investment, and it’s the right long-term decision for customers,” Mr Bezos added. “Although it’s counterintuitive, the fastest delivery speeds generate the least carbon emissions because these products ship from fulfilment centres very close to the customer — it simply becomes impractical to use air or long ground routes.”

Net sales rose 24 per cent to $70bn, beating the median analyst forecast for $68.8bn, but net income dropped to $2.1bn, or $4.23 per diluted share, versus forecasts of $4.62 in a Refinitiv survey.

Amazon partly blamed a $500m “unfavourable impact” from foreign exchange rates.

Despite the optimistic sentiment, Amazon’s projected fourth-quarter sales of $80bn-$86.5bn were lower than the consensus Wall Street estimate of $87.4bn.

Still, chief financial officer Brian Olsavsky described his expectations for fourth-quarter sales as “very strong”.

Amazon’s North American sales jumped to $42.6bn from $34.3bn a year ago, while international sales grew to $18.3bn from $15.5bn over the same period.

Amazon Web Services, its cloud storage business, accounted for $9bn, or 13 per cent, of total revenue. The division’s $2.3bn operating profit accounted for more than 70 per cent of total profit.

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Mr Olsavsky said Amazon was “investing heavily in AWS” to service a bigger customer base and offer more products. “That is starting to show up in the Q3 and Q4 results,” he said. “Infrastructure costs are a little higher this year than last year.”

Moody’s analyst Charlie O’Shea said that while Amazon’s next-day delivery investments were “strategically necessary”, they “continued to weigh heavily on its retail profitability”.

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