Shares of Amazon.com (AMZN 3.66%) took a hit on Thursday and were down about 7% during after-hours trading as of 5:10 p.m. EDT. The stock's slide reflects disappointment in the e-commerce giant's third-quarter update. While the quarter's revenue came in above analysts' forecast, earnings per share and revenue guidance both missed consensus estimates.
Here's a closer look at Amazon's third-quarter performance -- and exactly how the company missed the Street's expectations.
The headline figures
Amazon's third-quarter revenue rose 24% year over year to $70 billion. This was at the top end of management's guidance for revenue between $66 billion and $70 billion and higher than analysts' consensus forecast of $68.8 billion.
But Amazon's aggressive investment to transition from Prime two-day delivery to one-day delivery is weighing on profitability. EPS for the period came in at $4.23, down from $5.75 in the year-ago quarter. In addition, the metric was lower than analysts' average forecast of $4.62.
"Customers love the transition of Prime from two days to one day -- they've already ordered billions of items with free one-day delivery this year," said CEO Jeff Bezos in the company's third-quarter earnings release. "It's a big investment, and it's the right long-term decision for customers."
Soaring operating expenses
Capturing the company's big spending, Amazon's operating expenses for its North America segment increased 28% year over year and 12% sequentially.
On a consolidated basis, Amazon's operating expenses were up 26% year over year.
Strong revenue growth from AWS
Importantly, Amazon Web Services (AWS) saw impressive revenue growth and a year-over-year improvement in profitability.
AWS revenue increased 35% year over year. While this was a deceleration from 37% growth in Q2, it's not as steep as the deceleration from 42% growth in Q1 to 37% growth in Q2.
The segment's constant-currency operating income increased 6% year over year -- a significant deceleration from 24% growth in Q2.
For Amazon's fourth quarter, management guided for net sales between $80.0 billion and $86.5 billion, representing 11% to 20% year-over-year growth. On average, analysts were expecting Amazon to guide for fourth-quarter revenue of $87.4 billion.
In line with the company's plans to continue investing aggressively in one-day shipping, it expects operating income in Q4 to be between $1.2 billion and $2.9 billion, down from $3.8 billion in the fourth quarter of 2018.