Disappointing Holiday Forecast Drops Amazon’s Stock 9% After Earnings Report

Amazon’s stock fell as much as 9% late Thursday after the e-commerce giant announced disappointing growth in its revenue last quarter and also warned that its fourth quarter—which includes the busy holiday season—would also fall short of analyst estimates.

On the bottom line, Amazon delivered strong profit growth. Amazon’s posted earnings of $5.75 a share, handily beating Wall Street estimates by $2.66 a share. But Amazon investors learned long ago to focus more on revenue growth, because of Jeff Bezos’ longtime strategy to focus on growing market share rather than paying out dividends.

Amazon’s North American revenue of $34.3 billion was slightly above analyst estimates, while operating profit for the segment rose to $2 billion from $112 million dollars a year ago.

International revenue, however, came in at $15.5 billion, significantly below Wall Street’s consensus estimate of $16.5 billion, signaling an unexpected slowdown in Amazon sales abroad. In its earnings release, Amazon did not specify what factors held international sales growth back. Amazon also posted a $385 million loss in its international markets.

Perhaps more worrisome to investors, Amazon said revenue in the current quarter, which includes the holiday season, will come in between $66.5 billion and $72.5 billion, which translates into a year-over-year growth rate between 10% and 20%. Analysts had been expecting a better holiday quarter for Amazon: They targeted $73.9 billion in revenues, or a 22% growth rate.

Analyst forecasts notwithstanding, Amazon’s own guidance suggests the holiday season will see the slowest growth in some time. The midpoint of its guidance calls for 15% revenue growth. In the fourth quarter of 2017, Amazon’s revenue grew by 38%. Deloitte Insights is predicting that consumers will increase spending by as much as 22% this holiday season.

Another area of concern is that Amazon Web Services, the cloud service segment that has shored up Amazon’s profits, is also seeing a slowdown in growth. AWS revenue grew by 46% this quarter, still strong but below the 49% growth rate last quarter. On Wednesday, Microsoft said Azure, its own cloud-services business, grew by 76%.

After declining for much of the past week, Amazon’s stock rallied 7% during official trading Wednesday, although the post-earnings selloff more than offset those gains in after-hours trading. The plunge in after-hours trading left Amazon’s stock down 20% since late September. During that period, the Dow Jones Industrial Average has declined 6%.

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Joan Guzman