Amazon.com Inc shares skidded as much as 21% after hours after it forecast costs might eviscerate its profit for the current quarter, as early holiday marketing does little to boost sales growth and as labor and delivery expenses continue to swell.
The news followed similarly huge slide in META Platform shares on Thursday, after the Facebook parent reported late Wednesday costly metaverse bets and the impact of soaring inflation on ad spending, which spooked investors. But Apple earnings on Thursday were a bright spot, with higher than expected revenue leaving its shares only slightly lower.
Amazon’s net sales were $127.1 billion in the third quarter ended September 30, lower than analysts’ expectations of $127.46 billion, according to IBES data from Refinitiv. For the holiday quarter, the world’s biggest online retailer forecast net sales of between $140 billion and $148 billion versus expectations for $155.15 billion.
DANIEL MORGAN, PORTFOLIO MANAGER, SYNOVUS TRUST, ATLANTA, GEORGIA
“The Amazon and Apple reports showed divergence in terms of the overall health of the consumer. Amazon is down because of their fourth quarter revenue outlook. But then we look at the Apple report and they reported strong growth in a lot of their consumer categories. Their iPhones, Macs, wearables, and services all had positive growth rates. So it seems to me that Apple is in a better position in regards to weathering this slowdown in consumer spending.”
“Amazon came out and reported that they expect fourth quarter revenues to be below expectations and only grow 2% to 8% in this upcoming Christmas season. Going into the holiday season you would expect the consumer to really ramp up so that I see a big divergence between Apple and Amazon.”
“That is a huge black cloud on Amazon stock, which gives you the impression they’re not as well positioned.”
“Apple is a different model than Amazon. It creates its own products and has a very loyal user base. Amazon is just a conduit for other merchants.”
“Intel was all just cost cutting. Their client computing, PC unit was better than expected. That was good.”
“They came in and announced this massive cost cutting, from which you can create growth. They’re embracing the moment, realizing that they’re not executing and have to realign their business. The street is applauding this cost cutting agenda they’ve put together to try to grow earnings again.”
DANIEL KRIETER, DIRECTOR, FI STRATEGY, BMO CAPITAL MARKETS, NEW YORK
“The selloff in tech stocks post earnings indicates that the Fed’s restrictive policy is beginning to be felt in the real economy with growth slowing meaningfully. Now we wait to find out if the Fed can achieve a soft landing…it will be very difficult.”
ANDREW LIPSMAN, PRINCIPAL ANALYST, INSIDER INTELLIGENCE
“It looks like AWS is the primary culprit for the underperformance this quarter, as a relatively sharp slowdown in growth was directly responsible for the topline miss and weighed heavily on profits as well. The AWS slowdown is a clear sign that businesses are beginning to trim costs, so this will likely put more of a squeeze on Amazon’s bottom line in the coming quarters.
“The commerce and ads businesses did pretty well at a time when Amazon needed to show some renewed momentum, so it was successful in reversing those trends. Amazon is well-positioned to continue that momentum in Q4 with the added boost from the October Prime Early Access Event, but will face mounting headwinds in the consumer economy amid high inflation and rising interest rates.”
MICHAEL O’ROURKE, CHIEF MARKET STRATEGIST, JONESTRADING, STAMFORD, CONNECTICUT
“A lot of people have been holding out that earnings would hold up here. The guidance that Amazon gave is pretty disappointing, in the sense the fourth quarter is their Christmas quarter. They talked about struggling back in July when they reported Q2, and yet the stock rallied 30, 40%. So obviously there are still problems there.”
“As far as Apple, the numbers weren’t great; they weren’t terrible. But I think everyone wants to hear what the guidance is for next quarter.”
From a markets perspective, you have to be cautious going forward. When you think about whether it’s the FANGs or Tesla… they’re the biggest stocks in the market, and we really haven’t had much of anything good come out of any of them. A lot of what is holding the broad tape up at the moment is hopes of central bank policy pivots.”
“Obviously these companies are showing that the interest rate hikes and policy tightening are having an effect. We just don’t know how much of an effect, but it’s notable. And I think you’re going to see through year end investors trying to take a step back. They need a new baseline of where the trend of business is going forward, so I would expect more volatility going into year end.”
RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, A FAMILY INVESTMENT OFFICE, NEW VERNON, NEW JERSEY”Big tech companies are not impervious to slowdowns in the economy, particularly if they are consumer driven. What we saw in the past is that in a period of growth, tech really grew faster than anything else and got multiples that reflected that. But as the Fed embarks on this planned slowdown, it is eating away at some of their consumer-faced businesses and given their high multiples it is causing big contractions in their stock prices.”
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“We were so used to tech outperforming during the pandemic. There was always concern going into earnings, and quarter after quarter, they surprised to the upside. This period has been a major switch for tech. The higher rates don’t help, and you have the stronger dollar as a headwind amid the backdrop of weaker demand. So this is a period that is difficult.”
KIM FORREST, CHIEF INVESTMENT OFFICER, BOKEH CAPITAL PARTNERS, PITTSBURGH
“The world has changed but people haven’t. They want what won last year to win this year.”
“Amazon results just reflect the changing tastes of the consumer which nobody should be surprised by it. We were locked in our homes for two years and we’re getting out.”
“The companies and investors thought this would go on forever so the big technology companies like Amazon continued hiring to support a business that looks like the year 2021, and it’s not 2021. It’s 2022. Layer on top of this inflation. People are buying less stuff, I would have to guess. We know they’re buying less stuff from Amazon.”
“The big part with Apple is what they think looking forward. Despite the headwinds of the strong dollar and their consumers having to battle inflation, the results are pretty good.”
“Intel results surprised on the upside. They’d been priced for a going out of business sale which they are not. It’s still a long road ahead but this quarter was a bright spot. But we still have commentary on the call so don’t get too excited.”