Amazon misses Wall Street expectations by a mile
Wall Street will likely want an explanation from Jeff Bezos about Amazon's big miss.David Ryder / Stringer / Getty Images
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Amazon's second-quarter report fell well short of Wall Street's expectations.
The company's earnings missed analysts' forecasts by more than a dollar a share. It also offered a disappointing outlook for the third quarter.
Investors sold the stock on the news. In recent trading after the bell, Amazon's stock was down $29 a share, or nearly 3%, to $1,017.00.
The company reported on Thursday:
- EPS (GAAP) of 40 cents a share. Wall Street was expecting $1.42 a share, according to Bloomberg. In the year-ago period, Amazon earned $1.78 a share.
- Revenues of $38 billion. Analysts were expecting $37.2 billion. Amazon posted sales of $30.4 billion in the second quarter last year.
- Guidance: For the third quarter, Amazon expects to post revenue of between $39.25 billion and $41.75 billion. It expects its operating results to range from an operating loss of $400 million to an operating profit of $300 million. Assuming the company's nonoperating income and expenses stay about the same — and depending on its allocation for taxes — that guidance implies that Amazon expects its bottom line for the period to come in at between a nearly $1-per-share loss to a profit that's well shy of a $1 a share. Before Amazon's report, Wall Street was forecasting that Amazon would earn $1.13 a share on $39.97 billion in sales in the period.
The company's sales were boosted by results from its services business, most notably its AWS cloud-computing business. Compared with the year-ago period, AWS' revenue was up 42% to $4.1 billion. Amazon's overall service revenues also rose 42% to $13.2 billion. The company's total revenue grew 25%.
But rapidly rising expenses weighed heavily on Amazon's bottom line. Marketing costs jumped 44% from the second quarter last year to $2.2 billion. Amazon's spending on technology and content jumped 43% to $5.5 billion over the same period. Its fulfillment costs swelled 33% to $5.2 billion. Overall, the company's operating income was down 51% from the second quarter of 2016, to $628 million.
Amazon has been hiring software engineers and sales representatives for its AWS business, Brian Olsavsky, Amazon's chief financial officer, said on a conference call with analysts. It's also been investing in new warehouses, digital video for its streaming video service, and in developing and promoting its Echo smart speaker products, he said.
Besides increased operating costs, taxes took a toll on the company's results too. Even though Amazon's operating income was down from the same period last year, the amount it set aside for income taxes rose by more than 50%, to $467 million. That provision would give it a tax rate of about 70% for the quarter. It was unclear from the company's report why it set aside so much for taxes.
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