Amazon.com dips on missed target
Alphabet also posts bleaker forecast as analysts point to tougher competition from other tech companies
Amazon.com’s share price dropped by the most in four years on Friday after its outlook for holiday season sales missed targets.
Amazon shares dropped by the most in four years on Friday after its outlook for holiday season sales missed targets, fanning concerns that Wall Street’s tech darlings are finally starting to face stronger competition.
The third-quarter results were the second-time running that billionaire Jeff Bezos’s firm had fallen short of sales targets and, allied to a similar disappointment from Google owner Alphabet, they sent a shockwave through stock markets.
There were no ratings downgrades from the Wall Street analysts who have almost universally backed the firms’ long-term prospects but several said there were signs that both were beginning to face tougher competition from tech peers, as well as the retail companies Amazon has bullied in recent years.
The fall of as much as 9% in shares knocked more than $80bn off Amazon’s market value and relegated it behind Microsoft and Apple in terms of market value.
Now that the Seattle-based firm has devoured retail players such as Borders, Sears and Toys ‘R’ Us, it is facing bigger challenges from multinationals, which are making substantial investments to compete, DA Davidson & Co analyst Thomas Forte said. “Google, Microsoft, and Walmart are more difficult to kill,” he said.
Shares in Alphabet dropped about 2% after it fell short on sales after beating estimates for the past eight quarters. Revenue from Amazon’s international business, which brings in 27.5% of total sales, was at the heart of the shortfall in results, growth halving to 13.4% compared to the previous quarter.
“We don’t see any real structural issue with Amazon but nearly every line in the business is decelerating a tad and we typically see another deceleration in retail in 4Q, hence are struggling to identify a catalyst,” Barclays analyst Ross Sandler said.
Wolfe Research analyst Scott Mushkin saw two possible reasons Amazon forecast a holiday shopping quarter weaker than anticipated by Wall Street.
“They are worried about the macro. The second thing is they’re worried about competition,” he said, noting that there were both signs of a slowing economy and that major retailers were aggressively deploying strategies to compete with Amazon for holiday sales.
Amazon expected sales in the holiday quarter leading up to Christmas to rise between 10% and 20%, to as much as $72.5bn, while analysts on average had expected $73.9bn, according to Refinitiv data.
Its operating profit forecast of between $2.1bn and $3.6bn also came in below estimates.
“Overall, Amazon’s growth trajectory remains solid, including advertising, grocery, pharmacy and specialty retail, as well as Amazon Business ($10bn in sales in eight countries) and Amazon Web Services,” Telsey Advisory Group analysts said.
Amazon, Alphabet and Microsoft all continued growth in cloud services but with signs of deceleration. In the latest quarterly reports, Microsoft’s cloud computing business, Azure, marked revenue growth of 76%, down from 89% in the previous quarter.
Google’s other revenue, which includes its cloud business, grew 29% year on year, 4% below estimates of Cowen & Company analysts.
Amazon’s cloud business saw a 46% rise in revenue to $6.68bn, slightly up on past estimates of $6.67bn.
“In general the cloud business will continue to grow but not at the previous pace,” said Sid Nag, senior director of cloud technologies and services at Gartner Research.