Amazon Stock Plummets 8% Amid Disappointing Forecast and Rising Competition

Amazon’s stock took a significant hit, falling 8% in afternoon trading Friday, following a forecast for the current quarter that failed to meet expectations on both revenue and profit margins. This downturn was exacerbated by a weak July jobs report, which negatively impacted the tech sector and broader market.

Amazon stock tumbles 11% as profit, revenue outlook disappoints https://t.co/8eZoKV0KvN

— Kamal Mustafa ✪ (@MeKamalMustafa) August 2, 2024

For the third quarter, Amazon projected sales to fall between $154 billion and $158.5 billion, slightly below the analyst forecast of $158.43 billion as per Bloomberg data. Additionally, its expected operating income range of $11.5 billion to $15 billion fell short of Wall Street’s anticipated $15.2 billion.

Despite reporting earnings per share (EPS) of $1.26, surpassing estimates of $1.04 and nearly doubling profits from the previous year, the market’s focus was on Amazon’s shortcomings. The company generated $148 billion in revenue, marginally below the expected $148.8 billion, and even its robust advertising segment, which typically enjoys double-digit growth, missed expectations with $12.8 billion in revenue against the forecasted $13 billion.

Amazon Web Services (AWS) emerged as a highlight, generating $26.3 billion in revenue, exceeding the expected $26 billion and significantly higher than last year’s $22.1 billion for the same period. Amazon CFO Brian Olsavsky indicated that AWS is on track to surpass $105 billion in annual revenue.

However, investors are increasingly scrutinizing Big Tech’s massive spending on AI. Amazon, like its peers, is heavily investing in infrastructure to support AI technologies and cloud services, with over $30 billion spent on capital expenditures in the first half of the year, largely driven by AWS demand and generative AI tools. These investments are expected to rise in the latter half of the year.

Amazon $AMZN Earnings Recap – AWS Shines, but Forward Guide Disappoints

Mixed quarter, missing on the top line modestly but with nice profit metric beats (ex cash generation). Forward guide will leave a bad taste.

Stock down big initially but recovering. Now -2%. https://t.co/t6v0BGppfr pic.twitter.com/DbtPpD6Vbr

— CG (@ConsensusGurus) August 1, 2024

On the ecommerce front, Amazon faces growing competition from companies like Temu and Shein, which offer low-cost goods through direct-from-factory supply chains. In response, Amazon is reportedly developing a discount digital storefront to compete in the fashion and lifestyle sectors.

Key Points:

• Amazon’s stock dropped 8% following a forecast that missed expectations for revenue and operating income, compounded by a weak July jobs report.
• The company projected third-quarter sales between $154 billion and $158.5 billion, below the $158.43 billion forecast, and an operating income range of $11.5 billion to $15 billion, missing the expected $15.2 billion.
• Despite surpassing EPS estimates with $1.26 and nearly doubling profits from the previous year, revenue of $148 billion slightly missed the $148.8 billion target, and the advertising segment underperformed.
• AWS was a bright spot, generating $26.3 billion in revenue, exceeding expectations and significantly higher than last year’s $22.1 billion for the same period, with projections to surpass $105 billion annually.
• Amazon is heavily investing in AI and cloud services infrastructure, with over $30 billion spent in the first half of the year, and faces increased competition from companies like Temu and Shein in the ecommerce sector.

RM Tomi – Reprinted with permission of Whatfinger News