After two days of dramatic volatility in its stock, which saw the share price of Amazon first drop then soar by over $100, Jeff Bezos’ online retailing titan was expected to report blow out earnings, and while it indeed reported EPS which smashed expectations, it missed on revenue while guiding well below consensus, in a carbon copy of what it did last quarter.
In kneejerk response, the stock tumbled more than 6%.
More importantly, Amazon guided Q4 net sales to be between $66.5 billion and $72.5 billion, which however was far below the consensus est. $73.78B. Meanwhile, operating income is expected to come in between $2.1 and $3.6 billion, compared with $2.1 billion in Q4 2017, and also well below the consensus estimate of $3.9 billion.
This will be the key question facing shareholders: why the drop in margins in what is traditionally Amazon’s most lucrative quarter?
Here a quick reminder that at the end of last quarter, Amazon did the exact same thing: beat on Earnings and Operating Income, while missing on revenue and guiding lower, yet the stock soared. Why the opposite reaction this time? The answer is likely due to heightened investor concerns about “peak earnings” and with the company once again guiding well below consensus, even if it is due to sandbagging, the market is not happy.
Indeed, as RJ Hottovy, analyst at Morningstar writes, investors are worried about the weak profit outlook for the busy holiday quarter and why Amazon expects spending to increase. Specifically, analysts will want clarity on whether it’s a result of one-time costs like investing in a second headquarters or ongoing expenses like giving warehouse workers raises and opening new Amazon Go stores.