Amazon's stock falls 9%, as disappointing revenue, guidance seem to outweigh standout Q3 earnings (AMZN)

Jeff Bezos

Amazon on Thursday reported third-quarter earnings that were more than $2 a share better than analysts had forecast.
But the company's revenue for the period was lower than expected, and it offered a disappointing revenue forecast for the fourth quarter.
Investors sold off the stock on the news.

Amazon's third-quarter profit blew away analysts' heady expectations, but it still managed to disappoint Wall Street.

Analysts were predicting that on a per-share basis, Amazon's profit would be six times larger in the period than it had been in the same quarter a year earlier. In actuality, the company's earnings per share in the third-quarter, which it reported Thursday, were more than 10 times larger than the prior year quarter. Surging profits from its North American retail and Amazon Web Services cloud computing businesses helped boost its bottom line.

But the company tempered that standout result with several pieces of disappointing news. Its revenue in the third quarter fell short of expectations, and it forecast that its holiday sales would similarly be less than analysts had forecast. More distressingly, the company's outlook implied that its fourth-quarter profit could be far lower than Wall Street was predicting.

The company's forecast was "well below" analysts' estimates, noted Colin Sebastian, a financial analyst who covers the company for Baird Equity Research, in a note following Amazon's report. The outlook may reflect rising labor or shipping costs, he added.

"Investor focus likely shifts to softer-than-anticipated holiday revenue [and] profitability guidance," he said in the note.

Indeed, shareholders seemed to focus on the negative. In recent after-hours trading, the company's shares were off $157.16, or 8.8%, to $1,625.01. The selloff wiped out the stock's strong gains earlier in the day in the regular session.

Here's what the company reported:

Q3 revenue: $56.6 billion. Analysts were looking for $57.1 billion. In the third quarter last year, Amazon pulled in $43.7 billion in sales.
Q3 earnings per share: $5.75. Analysts had forecast $3.11 per share. In the same period last year, the company earned 52 cents a share.
Q4 earnings per share (forecast): Between $66.5 billion and $72.5 billion. Wall Street had projected $73.8 billion before the report.. In the holiday period last year, Amazon saw sales of $60.5 billion.
Q4 EPS (forecast): The company didn't provide specific earnings guidance for the holiday period. But its outlook implies a profit of between $3 a share and $5.54 a share, assuming its interest income, interest expense, tax rate, and share count remain about the same. Analysts had previously forecast it would earn $5.79 a share in the quarter. In last year's fourth quarter, the company earned $3.75 a share.

Amazon got a boost from AWS, Prime, and advertising

Yet again, Amazon's cloud business gave it a big boost. AWS's revenue jumped 46% from the year-ago period to $6.7 billion. The division's operating profit, meanwhile, grew 77% over the same time period to $2.1 billion, accounting for more than a third of Amazon's total net profit for the period.

But the company also saw a windfall from its retail operations, particularly those in North America. That division saw sales jump 35% to $34.3 billion. Earnings from the segment surged to $2 billion from just $112 million in the third quarter last year.

Those results were inflated by the company's acquisition of Whole Foods. That purchase happened in the middle of the third quarter last year, which meant that Amazon included only about a month's worth of Whole Foods' revenue in its third-quarter results last year, versus a whole quarter's worth this time around.

Amazon also benefitted from strong sales of its Prime subscription program. Its overall subscription revenue, which comes not just from Prime, but also from Audible.com, Amazon Music, and other services, grew 52% from the third quarter last year to $3.7 billion.

And the company continued to see success in advertising. Its "other" revenue, which largely comprises advertising sales, jumped 122% to $2.5 billion.

Amazon's stock closed regular trading up $117.97 a share, or 7.1%, to $1,782.17.

Now read about Thursday's other Q3 earnings reports in the tech sector: