Amazon shares plummet after dismal holiday sales forecast

Amazon issued bleak revenue forecasts for the remainder of the year, sending its stock price tumbling as much as 20 per cent in after-hours trading on Thursday.

The ecommerce and cloud group said it expected revenue of between $140bn-$148bn for the October to December period, which encompasses the crucial holiday shopping period. Investors had been expecting more than $155bn, according to data from S&P Capital IQ.

Amazon projected that operating income in the current quarter could be between zero and $4bn, versus analysts estimates of $5bn.

The results are the latest in a bruising year for the company’s traditional core business of selling products online and getting them to customer’s doorsteps. Quarterly revenue for Amazon’s online store had been declining since the end of 2021.

Revenue in the third quarter came in at $127.1bn, up 15 per cent on the same period last year, but slightly softer than Wall Street’s expectations.

Amazon’s net income fell year-on-year to $2.9bn compared with $3.2bn a year ago and included a $1.1bn boost in non-operating income from its stake in electric vehicle maker Rivian.

Its stock price had already fallen by 35 per cent since the start of the year before Thursday’s stock price plunge, reflecting a broader market downturn.

Amazon’s results were the latest in a dismal week for Big Tech stocks, as macroeconomic pressures such as inflation weighed on the sector. “This is uncharted waters for a lot of consumers’ budgets,” said Brian Olsavsky, Amazon’s chief financial officer.

Chief executive Andy Jassy said he had been “encouraged by the steady progress we’re making on lowering costs in our stores fulfilment network”.

But he added: “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

Amazon’s cloud business, which for much of the year has partially counteracted poor performance in retail, saw worse than expected revenue growth and lower margins. Cloud revenue for the quarter was $20.54bn, up 27.5 per cent year-on-year. It was the first quarter that figure has fallen below 30 per cent since the end of 2020, and below analysts’ estimates.

The unit had suffered from businesses looking to cut variable costs, Olsavsky said.

“We started to see a lot customers cutting their bills, which we’re glad to help with,” he said. “It’s impacting the short-term growth rates.”

While not announcing a large-scale hiring freeze or sweeping cuts, Amazon has slowed hiring in some units, and in recent weeks moved to close underperforming or experimental projects, such as its delivery robot concept, Scout.

Olsavsky said the company had become “very careful” in its corporate hiring. “We are preparing for what could be a slower growth period. We certainly are looking at our cost structure and areas where we can save money.”

It has also reined in logistics costs after executives admitted earlier this year they had overexpanded on warehouse leases and other infrastructure investments.

However, spending has continued apace in its priority areas, such as acquiring sports and entertainment content for its Prime Video service, and building out its healthcare operation. In July, Amazon announced it would acquire primary care provider One Medical in a deal worth $3.9bn.

The disappointing results are set to cap off a suboptimal first full year in charge for Jassy, who took over from founder Jeff Bezos in July 2021, as Amazon’s challenges were seemingly coming to a head.

“The probabilities in this economy tell you to batten down the hatches,” Bezos tweeted earlier this month.

Earlier on Thursday, Amazon ecommerce rival Shopify beat analysts’ expectations, posting a 22 per cent rise in revenue, year-on-year, for the third quarter.

Shares of the Canadian group, which provides a software platform for online retailers, jumped by 17.3 per cent on Thursday, despite warnings that a strong dollar and other macroeconomic pressures would be a drag on consumer spending.