Amazon shares fall after weak holiday sales forecast

Amazon warned consumer spending was in ‘uncharted waters’ as it released revenue forecasts well below Wall Street expectations, sending its shares tumbling nearly 13% after hours and accentuating the feeling of gloom that weighs on the technology sector.

The e-commerce and cloud computing group, which has become a modern-day indicator for the U.S. economy, said it expects revenue of between $140 billion and $148 billion in the fourth quarter, which includes the critical holiday sales season. That was up to $15 billion lower than the $155 billion expected by analysts, according to S&P Capital IQ.

Amazon forecast fourth-quarter operating profit to be between zero and $4 billion, versus analysts’ estimates of $5 billion.

Brian Olsavsky, chief financial officer of Amazon, said rising inflation and energy prices have prompted consumers and businesses to reassess their purchasing power. “These are uncharted waters for many consumer budgets,” he added.

Amazon shares, already down 35% this year, fell as much as 20% in after-hours trading on Thursday before recovering to trade 13% lower.

It was the latest Big Tech group to disappoint investors this week, after Google owner Alphabet, Facebook parent Meta and Microsoft spooked Wall Street with warnings of slower growth and higher costs.

Amazon reported third-quarter revenue of $127.1 billion, up 15% from a year ago but slightly below analysts’ expectations. Net income fell to $2.9 billion from $3.2 billion a year ago and included a $1.1 billion increase in non-operating revenue from its stake in electric vehicle maker Rivian.

Chief executive Andy Jassy said the company was making progress in reducing its warehouse and logistics costs, but warned “there is obviously a lot going on in the macro environment”.

He added: “We will balance our investments to be more streamlined without jeopardizing our key long-term strategic bets.”

Amazon’s cloud business, which for much of the year helped offset weakness in retail, also suffered from weaker-than-expected revenue growth and weaker margins in the third quarter.

Cloud revenue grew 28% year-on-year to $20.54 billion, marking the first time since the end of 2020 that the unit grew less than 30%.

The division had been hit by companies trying to cut variable costs, Olsavsky said. “We’ve started to see many customers reduce their bills, which we’re happy to help with,” he said. “That has an impact on short-term growth rates.”

After declining in the previous two quarters, Amazon’s online store revenue returned to growth with a 7% rise in sales to $53.49 billion, although the company warned consumers could limit their spending for the rest of this year.

“Consumers burned through their savings,” said Guru Hariharan, chief executive of CommerceIQ, an e-commerce management platform. “And in the wake of the spending spree in the first truly post-Covid summer, they are reassessing their budgets.”

Amazon has slowed hiring in some units and in recent weeks decided to shut down underperforming or experimental projects, such as its concept delivery robot, Scout.

Olsavsky said the company has become “very cautious” in its recruitment. “We are preparing for what could be a period of slower growth. We are certainly looking at our cost structure and where we can save money. »

However, spending continued to rise in its areas, including acquisitions of sports and entertainment content for its Prime Video service and the expansion of its healthcare business.

Olsavsky said 25 million people watched Prime Video the Lord of the Rings spin off, rings of power the first day of its release. The series cost $1 billion to produce.

A disappointing fourth quarter would mark the end of Jassy’s first full year at the helm. He took over from founder Jeff Bezos in July 2021 when Amazon’s challenges began to mount.

“The odds in this economy are telling you to batten down the hatches,” Bezos said on Twitter earlier this month.

Earlier Thursday, Amazon’s e-commerce rival Shopify beat analysts’ expectations, posting a 22% year-over-year revenue increase for the third quarter.

Shares of the Canadian group, which provides a software platform for online retailers, jumped 17.3% on Thursday, despite warnings that a strong U.S. dollar and other macroeconomic pressures would dampen consumer spending.

Additional reporting by Ian Johnston in London

Sallie R. Loera