Economic headwinds and a more value-conscious consumer are hitting Amazon.com Inc., taking a bite out of the company’s holiday outlook.
Amazon shares slumped in after-hours trading Thursday after the company offered a revenue forecast for the current quarter that missed consensus estimates.
The company said it expects revenue for the December quarter to be in the range of $140 billion to $148 billion, off from the $155.2 billion analysts on average expected. The forecast would reflect an increase of 2 percent to 8 percent from the fourth quarter of 2021.
The company’s stock was trading down as much as nearly 17 percent after hours Thursday on the forecast miss to $92.30 for a market cap of $1.1 trillion.
“While we are encouraged by our progress across the business, the macroeconomic environment remains challenging worldwide,” Brian Olsavsky, senior vice president and chief financial officer, said during a call with analysts Thursday. “The continuing impacts of broadscale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend.”
The “moderated” sales growth Olsavsky said Amazon saw set in during the third quarter is expected to continue in the current period.
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The outlook came with the e-commerce company’s third-quarter results, which saw Amazon beat consensus estimates in its profit of $2.9 billion. Analysts on average expected earnings of $2.2 billion.
Amazon’s revenue in the third quarter totaled $127.1 billion, just shy of the $127.5 billion analysts projected.
In a Nutshell: It’s clear the focus is bolstering the business, amid a rocky economic environment. Cost-cutting measures have been in play at the retailer this year and chief executive Andy Jassy said that will only continue, while noting progress on that front in a statement released Thursday.
“We’re also encouraged by the steady progress we’re making on lowering costs in our stores fulfillment network, and have a set of initiatives that we’re methodically working through that we believe will yield a stronger cost structure for the business moving forward,” Jassy said.
Olsavsky echoed the sentiment on the analyst call, as he referenced “actions to tighten our belt.” Those measures, he said, include hiring freezes and the shuttering of certain divisions, such as the primary care business Amazon Care and children’s video-calling device Amazon Glow.
The company aimed to offer an upbeat view on its holiday outlook, but still tempered the rosiness with the broader economic uncertainty.
“We’re very optimistic about the holiday,” the CFO said. “But we’re realistic that there’s factors weighing on people’s wallets and we’re not quite sure how strong holiday spending will be versus last year and we’re ready for a variety of outcomes.”
Net Sales: The company’s net sales in the recently ended quarter jumped 15 percent from a year ago to $127.1 billion.
The surge was led by growth in the company’s North American market, which saw sales up 20 percent to $78.8 billion, and the cloud services division, Amazon Web Services (AWS), which totaled $20.5 billion. AWS was up 28 percent, excluding the impact of exchange rates.
Olsavsky noted on the analyst call the company has seen “an uptick in AWS customers focused on controlling costs.”
Online sales, which accounts for the largest share of the company’s revenue, totaled $53.5 billion, an increase of 7 percent from a year ago.
Jassy said the response to the company’s annual Prime Day, which occurred in the second quarter, and the sequel Prime Early Access Sale held earlier this month “was quite positive.”
Meanwhile, brick-and-mortar retail grew in the quarter by 10 percent to $4.7 billion.
Advertising services increased 25 percent year-over-year to $9.5 billion, while subscription services rose 9 percent to $8.9 billion.
Services for third-party sellers on the site amounted to $28.7 billion in the quarter, up 18 percent from a year ago.
Subscription services totaled $8.9 billion, up 9 percent from a year ago.
Net Loss: The company’s profit narrowed in the third quarter to total $2.9 billion, compared to $3.2 billion a year ago.
The total reflects a valuation boost from electric vehicle maker Rivian Automotive, of which Amazon holds about an 18 percent stake.
Rivian, which continues to see swings in its value in line with its stock, has taken a beating since its IPO nearly a year ago due to parts shortages and delivery delays brought on by supply chain-related challenges.
CEO’s Take: Amazon’s looking to stay in front of consumers by playing up its “value and convenience” pitch, which Jassy said is attracting consumers during “uncertain economic times.”
“There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without comprising our key long-term strategic bets,” Jassy said in a statement.
The CEO added on the upcoming peak selling period, “we feel confident that we’re ready to deliver a great experience for customers this holiday shopping season.”