Amazon and Alphabet’s $82 Billion Rout Echoes Facebook Loss

Anna Jefferson
October 27, 2018

Amazon has announced their financial results for the third quarter, revenue was short of Street expectations, and earnings absolutely crushed analysts' estimates. Analysts had previously forecast it would earn $5.79 a share in the quarter. On a call with reporters, Amazon CFO Brian Olsavsky said about 400,000 employees will be affected by a promise made last month to bump the company's minimum wage to $15 an hour for all employees, including part-time and seasonal workers. "The second thing is they're anxious 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. Meanwhile, net income has increased to $2.9 billion in the third quarter, which is a big jump from the $256 million from this time past year.

Heading into the print, Stifel analyst Scott Devitt has raised his near- and long-term revenue estimates for Amazon's retail, advertising, and AWS businesses and modestly increased his margin forecasts. In addition, Amazon faces a tougher year-over-year comparison because the Whole Foods deal closed in the third quarter of 2017, and the different timing of the holiday Diwali affected sales patterns, he said.

Amazon's total operating expenses increased 22 per cent to US$52.9 billion in the third quarter.

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More sellers are looking to Amazon to market their products, too - another highly profitable business. Hiring growth was seasonally higher in Q3 as the company brings on recent college grads, Porat said. This quarter they cleared almost $3 billion. The Seattle-based e-commerce giant reported an operating loss of $385 million, compared to losses of $936 million a year ago. Its revenue of $56.6 billion, however, missed the $57.1 billion that was expected, and its fourth-quarter revenue guidance of $66.5 billion to $72.5 billion also fell short.

Amazon forecast fourth-quarter operating income between $2.1 billion and $3.6 billion, below the $3.87 billion expected by analysts, according to FactSet.

Amazon also benefitted from strong sales of its Prime subscription program.

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Amazon is quickly morphing into a "profit machine", writes Anthony Chukumbo, a senior analyst at Loop Capital. Wall Street was expecting $3.9 billion yet the company guided to $2.1 to $3.6 billion. North American retail operations are doing much better than the years of yore that saw the company lucky to count two percent margin. Deutsche Bank analyst Lloyd Walmsley reiterated his Buy rating for Amazon stock due to his confidence about other long-term opportunities, such as grocery, global markets, and ad businesses.

In the latest quarterly reports, Microsoft's cloud computing business Azure marked revenue growth of 76 percent, down from 89 percent in the previous quarter.

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