When Amazon (AMZN 1.03%) released its third-quarter results last week, the company broke from its recent norm of reporting both better-than-expected revenue and earnings per share. Sure, the company beat expectations when it came to profitability, but worse-than-expected revenue and softer-than-anticipated guidance for the important holiday quarter were enough to spark a sell-off in the stock. Shares have taken a beating, falling a total of 14% over the last two trading days.
But did Amazon stock really deserve to take such a big hit? To get a better idea of how the company is performing, here are four of the most insightful metrics from the quarter.
Image source: Amazon.com.
1. Net sales increased 29%
Amazon's net sales rose 29% to $56.6 billion. Although this is in line with management's guidance for third-quarter sales to be between $54 billion and $57.5 billion, it was below a consensus analyst estimate for the key metric. On average, analysts expected Amazon to report third-quarter net sales of $57.1 billion.
Further, though this was strong revenue growth, it was a notable deceleration from the 39% year-over-year sales growth Amazon posted in its second quarter.
2. Operating income of $3.7 billion
Amazon's operating income soared, rising from $347 million in the third quarter of 2017 to $3.7 billion in the third quarter of 2018. In Amazon's third-quarter earnings call, management credited the company's big jump in operating income to higher revenue, strong cost performance, and rapid growth of its more profitable businesses -- namely Amazon Web Services and advertising.
3. An 11-fold increase in earnings per share
Amazon's strong revenue and operating income growth translated to skyrocketing earnings per share. The key per-share bottom-line metric increased from $0.52 in the year-ago quarter to $5.75.
The company's earnings-per-share growth is just as evident on a trailing-9-month basis. Amazon's earnings per share over the trailing-9-month period was $14.10, up from $2.39 in the same timeframe one year ago.
4. Amazon expects Q4 revenue to rise about 15%
Looking ahead, management guided for fourth-quarter revenue between $66.5 billion and $72.5 billion, representing 10% to 20% year-over-year growth. This midpoint of the guidance range implies about 15% growth.
This year-over-year growth rate would mark a significant deceleration in Amazon's recent revenue growth rates. To this end, Amazon's guidance was lower than what analysts were expecting; before Amazon reported third-quarter results, the consensus analyst estimate for the e-commerce and cloud-computing company's fourth-quarter revenue was $73.8 billion.
Management was careful to note during the company's third-quarter earnings call that the guidance includes a forecast for an 80 basis-point headwind in foreign exchange rates as well as the inclusion of a full quarter of Whole Foods' sales in the year-ago quarter, as the acquisition was made in August of last year. But Amazon CFO Brian Olsavsky also admitted during the call that the holiday quarter is "always a very difficult period for us to estimate."
Given Amazon stock's sharp rise over the past 12 months (shares are up 39% even after the stock's recent decline), the company's slowing revenue may be a good reason to revisit Amazon's valuation. Still, investors should keep in mind that earnings per share are actually outperforming expectations. Amazon's third-quarter EPS of $5.75 crushed a consensus analyst estimate of $3.14.
