Last updated: 01 Nov, 2021 | 12:58 pm
Income falls: Amazon’s profits plunged to $3.2 billion in the third quarter, down by nearly 50% on year from $6.3 billion in the same quarter last year. Amazon posted earnings of $6.12 per share, well below Wall Street’s expectations of $8.92 per share, and down from $12.37 per share a year ago. Operating income decreased to $4.9 billion in the third quarter, compared with $6.2 billion in third quarter 2020. The weak bottom line performance was largely attributed to supply chain constraints and high labour costs.
Revenue rises: The revenue rose 15% to $110.8 billion, toward the high end of the company’s prior guidance but missing analyst expectations of $111.6 billion. Revenue in the same quarter last year stood at $96.1 billion. Still, this was a fourth consecutive quarter of revenue topping $100 billion.
Segment Revenue: Amazon's key online store sales fell short of expectations in the third quarter, contributing to the slowdown in overall revenues. E-commerce sales were up 3% over last year to $49.94 billion, missing estimates for $51.53 billion. For the first time in Amazon’s history, the company’s revenue from online and physical retail store sales represented less than 50% of its overall revenue for the quarter, due to steady increases in areas such as its Amazon Web Services cloud business and revenue from advertising.
Amazon's AWS revenue rose 38.9% on year, to $16.1 billion. AWS generates much higher margins than its e-commerce business. In the third quarter, Amazon's global retail sales and subscription-based segments generated about 85% of the company's total revenue, while AWS accounted for a mere 15%. However, AWS accounted for 85% of the operating income across all of Amazon's business segments. The international sales and subscription-based business segment reported an operating loss of $911 million during the quarter.
Guidance for last quarter: Amazon expects its net sales for the fourth quarter to be between $130.0 billion and $140.0 billion, missing estimates for nearly $142 billion, based on Bloomberg consensus data. Operating income is expected to fall to somewhere between $0 and $3.0 billion, coming in well short of the $7.4 billion estimated.
In the fourth quarter, the company expects to incur several billion dollars of additional costs in its Consumer business as they manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs while doing whatever it takes to minimize the impact on customers and selling partners this holiday season.
Amazon Q3 brokerage review: Amazon has reported lacklustre set of numbers for the quarter ended Sep, well below analysts estimates.
Morgan Stanley lowered the target price to $4,000 from $4,100 and affirmed an Overweight: Margin pressures were guided to be even higher than estimated in Q4, due to the higher operating margin pressure on the retail business from more hiring, higher hourly labor costs, freight costs, and higher content spend.
Credit Suisse analysts raised the price target to $4,200 from $4,100 and kept an Outperform rating: Amazon's 1P inventory days are at the highest they have ever been heading into the holidays, and further as its ability to store 3P inventory is no longer capacity-constrained, it views this as an opportunity to pick up wallet share as it will have greater levels of merchandise availability vs the competition.
Goldman Sachs analysts lowered the price target to $4,100 from $4,250 and reiterated a Buy rating following its mixed results: Amazon is well positioned to navigate any potential supply chain driven inventory issues to meet consumer demand. While investors are likely to be disappointed by Amazon's operating profit narrative, the company is making a smart strategic move to crystallize e-commerce penetration gains from the pandemic period into more normalized consumer shopping velocity.