Amazon shares plummet after weak holiday sales forecast

Amazon warned consumer spending was in “uncharted waters” as it issued revenue forecasts well below Wall Street expectations, sending its shares down as much as 20 per cent and deepening the sense of gloom hanging over the tech sector.

The ecommerce and cloud computing group, which has become a modern day bellwether for the US economy, said it expected revenues to be between $140bn and $148bn in the fourth quarter, which includes the critical holiday selling season. That was as much as $15 bn less than the $155bn analysts were expecting, according to S&P Capital IQ.

Amazon projected operating income in the fourth quarter would be between zero and $4bn, versus analysts’ estimates of $5bn.

Brian Olsavsky, Amazon’s chief financial officer, said rising inflation and energy prices had prompted consumers and businesses to reassess their purchasing power. “This is uncharted waters for a lot of consumers’ budgets,” he added.

Shares of Amazon, already down 35 per cent this year, fell as much as 20 per cent in after-hours trading on Thursday before recovering to trade 13 per cent lower.

It was the latest Big Tech group to disappoint investors this week, after Google owner Alphabet, Facebook parent Meta, and Microsoft spooked Wall Street by warning of slower growth and higher costs.

Amazon reported third-quarter revenues of $127.1bn, up 15 per cent versus last year but slightly worse than analysts’ expectations. Net income fell to $2.9bn from $3.2bn a year ago and included a $1.1bn boost in non-operating income from its stake in electric vehicle maker Rivian.

Chief executive Andy Jassy said the company was making progress on lowering its warehouse and logistics costs but warned “there is obviously a lot happening in the macroeconomic environment”.

He added: “We’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

Amazon’s cloud business, which for much of the year has helped to offset weakness in retail, also suffered from lower than expected revenue growth and weaker margins in the third quarter.

Cloud revenue rose 28 per cent year-on-year to $20.54bn, marking the first time since the end of 2020 that the unit grew less than 30 per cent.

The division had been hit by businesses trying to cut variable costs, Olsavsky said. “We started to see a lot customers cutting their bills, which we’re glad to help with,” he said. “It’s impacting the short-term growth rates .”

Amazon has slowed hiring in some units and in recent weeks moved to close underperforming or experimental projects, such as its delivery robot concept, Scout.

Olsavsky said the company had become “very careful” in its corporate hiring. “We are preparing for what could be a slower growth period. We certainly are looking at our cost structure and areas where we can save money.”

However, spending has continued to rise in its areas including the acquisitions of sports and entertainment content for its Prime Video service and the expansion of its healthcare operation.

A disappointing fourth quarter would mark the end of Jassy’s first full year in charge. He took over from founder Jeff Bezos in July 2021, when Amazon’s challenges started to mount.

“The probabilities in this economy tell you to batten down the hatches,” Bezos tweeted earlier this month.

Earlier on Thursday, Amazon ecommerce rival Shopify beat analysts’ expectations, posting a 22 per cent rise in revenue, year-on-year, for the third quarter.

Shares of the Canadian group, which provides a software platform for online retailers, jumped 17.3 per cent on Thursday, despite warnings that a strong US dollar and other macroeconomic pressures would be a drag on consumer spending.