The company met analyst expectations when it came to sales, but the 52 cents earnings per share falls short of the expected 78 cents.
Amazon.com’s profit fell way short of Wall Street’s rosy hopes in the third quarter as the company dealt with the consequences of its own ballooning growth by opening a record number of new warehouses and beefing up perks for its Amazon Prime members.
The Seattle tech juggernaut on Thursday reported a 29 percent increase in sales to $32.71 billion, slightly more than analysts expected on average and a sign that its rapid growth continues unabated.
But its profit of $252 million came to 52 cents per share, while analysts had expected the Seattle company to earn 78 cents per share.
The results triggered a sell-off. Shares, which earlier this week were trading near record highs, fell about 6 percent to $771 in after hours trading.
Amazon’s results often have yielded surprises, but investors in recent quarters had come to expect tidy earnings, as the company’s Amazon Web Services cloud-computing business brought home increased profitability.
While the quarter’s profit was higher than the $79 million posted in the same period a year ago, it was much lower than in the preceding two quarters of this year, quarters in which Amazon topped expectations.
Neil Saunders, CEO of research firm Conlumino, said in a statement that Amazon brought home 0.8 cents in profit for every single dollar in revenue, down from 2.8 cents in the second quarter. He called the amount a “rather paltry proportion.
“It undoes some of the recent progress Amazon has made on the profit front,” Saunders said.
The numbers don’t break with Amazon’s historical practice of reinvesting revenue, a practice the markets have treated with leniency in the past. “But the disappointment over this quarter’s numbers may signal increased scrutiny in years ahead,” Saunders said.
Chief Financial Officer Brian Olsavsky said the results reflected major investments in new warehouses ahead of the holiday season, a move that comes with cost penalties as those warehouses don’t operate as efficiently as established facilities.
Amazon added 18 of its so-called fulfillment centers just in the third quarter, mostly in North America, vs. 14 for the entire 2015.
The ramp-up seeks to avoid the logistics hiccups Amazon encountered during the past holiday season, in which it scrambled to move product out of overstuffed warehouses and dealt with higher-than-expected customer demand.
Most Read Business Stories
- Melinda Gates' name listed on Seattle home deed ahead of divorce, but that doesn't mean she bought it
- Who gets Xanadu 2.0, the Gates family mansion?
- The end of the pandemic lockdown is closer than you think
- Authentic Brands and Simon to buy outdoor merchant Eddie Bauer
- West Virginia factory is center stage in supply chain crisis as U.S. economy seeks to rebound from COVID
The focus on logistics also seeks to help Amazon make strides toward ever faster delivery times, exemplified by initiatives such as Prime Now, a service that drops items at customers’ doors within hours. On a call with analysts Thursday, Olsavsky said the economics of Prime Now are tough, “but we feel that our scale makes that possible.”
Such ventures have contributed to a spike in net shipping costs, which have grown faster than the number of units shipped since the last holiday season.
Amazon is also in the midst of a ramp-up in spending on video content for its Netflix-like streaming service, a critical perk of its $99-a-year Prime loyalty program. Prime is an important part of Amazon’s business. The tens of millions of households enrolled in it not only bring in billions in revenue, but also are more loyal shoppers. Amazon CEO Jeff Bezos has vowed to make Prime “such a good value, you’d be irresponsible not to be a member.”
Additionally, the company is busy strengthening its India operations and building out the capabilities of Alexa, the artificial intelligence software that animates the successful Echo line of devices.
Amazon is still hiring massively, with 306,800 employees at the end of the quarter, 38 percent more than a year ago and an increase of nearly 40,000 in three months. “There’s a lot of hiring to support the projects we’re investing in,” Olsavsky said.
The company did not disclose the number of employees in the Seattle area, but recent estimates place it at more than 25,000.
Olsavsky acknowledged that there’s a lot of competition for talent, especially for the techies that populate Amazon Web Services (AWS), the company’s profitable cloud-computing unit, which rents out computing power and storage.
AWS remains a critical driver of business, and it saw a big boost in sales — up 55 percent to $3.2 billion. It yielded $861 million in operating income, twice as much as in the same quarter a year ago, indicating increasing profitability as Amazon scales up the operation.
For the critical holiday season, the company posted guidance showing revenue between $42 billion and $45.5 billion for the fourth quarter, up between 17 percent and 27 percent vs. the same period a year ago.
Meanwhile, Web publication Business Insider on Wednesday said it viewed an internal Amazon document that shows plans for 20 grocery stores, including locations in Seattle, and chatter about a market opportunity for 2,000 Amazon Fresh grocery stores in the U.S. over the next decade.
On Thursday, Olsavsky declined to discuss the report. “I can’t comment on any speculation or rumors out there,” he said.
He did add that other Amazon brick-and-mortar experiments with bookstores and package pickup locations had been successful.