Please ensure Javascript is enabled for purposes of website accessibility

Amazon Q3 Earnings: What You Should Know

By Daniel Sparks - Oct 24, 2019 at 7:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Revenue came in above analyst estimates. But this wasn't enough to impress the Street.

Shares of (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.

A smartphone displaying a shopping cart icon

Image source: Getty Images.

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.

Looking ahead

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned, Inc. Stock Quote, Inc.
$2,302.93 (3.66%) $81.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.