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Why's Stock Fell 20% Last Month

By Anders Bylund – Nov 12, 2018 at 1:58PM

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The e-tailer's guidance for the upcoming holiday quarter gave investors cold feet.

What happened

Shares of (AMZN 2.31%) fell 20.2% lower in October of 2018, according to data from S&P Global Market Intelligence. On the heels of the e-commerce veteran's solid third-quarter earnings report, investors were rattled by modest guidance for the all-important holiday season and shaky trading across the tech sector in general.

Young woman scratching her head and glancing sideways.

What will Amazon do in the fourth quarter? Image source: Getty Images.

So what

Amazon's stock dropped as much as 10.1% lower on Oct. 26, the day after publication of the company's earnings report. Sales grew 30% year over year, while earnings multiplied 11-fold, exceeding Wall Street's bottom-line estimates by 83%. But management's revenue guidance for the fourth quarter pointed to a slowdown over the holidays, with sales growth expected to stop at roughly 15%. The fourth quarter will be the first earnings report in which both the current data and the year-ago figures include a full three months' worth of contributions from the Whole Foods buyout, but Amazon is aiming low even without that artificial growth booster.

Now what

Amazon's year-over-year sales growth has inevitably landed above 20% in recent years, with the exception of a 15% gain at the end of 2015. Even then, the company was fighting a significant headwind from negative currency-exchange trends. That's not the case this time. It's no surprise to see Amazon investors shying away from that kind of potentially disastrous guidance.

That doesn't take away from Amazon's value as a long-term investment, especially if the fourth-quarter forecast turns out to have been overly humble. Either way, the fourth-quarter report is likely to turn heads and move stock prices early next year. We just don't know yet in which direction.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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