Amazon.com’s stock has been range-bound for more than a year, as worries about reopenings, supply chain issues and a CEO transition weigh on shares.
That might spell a relatively low bar as the e-commerce and cloud giant delivers its Q3 report on Thursday afternoon. Among analysts polled by FactSet, the consensus is for Amazon to post Q3 revenue of $111.51 billion (up 16% Y/Y) and GAAP EPS of $8.90 (down 28% due to high spending).
Amazon typically shares revenue and operating income guidance in its earnings reports. For seasonally big Q4, the revenue consensus is at $142.17 billion (up 13%) and GAAP operating income of $7.71 billion (up 5%).
Eric Jhonsa, Real Money’s tech columnist, will be live-blogging Amazon’s report, which is expected shortly after the bell, along with an earnings call scheduled for 5:30 P.M. Eastern Time. Please refresh your browsers for updates.
6:23 PM ET: Amazon’s call has ended. Shares are down 3.8% after hours to $3,316 after missing Q3 estimates and issuing below-consensus Q4 guidance.
The company reiterated that return of pre-pandemic behavior patterns are currently a top-line headwind for its e-commerce operations. It also mentioned that it’s currently labor-constrained, and that supply chain and inflationary pressures will act as a ~$4B cost headwind in Q4.
On the bright side, Amazon’s gross margin rose more than expected, thanks to a continued mix shift towards services revenue streams. And AWS revenue growth accelerated for the third straight quarter.
Thanks for joining us.
6:14 PM ET: A question about whether there’s been a pullback in ad spend.
Olsavsky: We’re still seeing ad strong growth. Prime Day typically drives a lot of ad spend. It happened in Q2 this year vs. Q4 last year, so that could affect Q4 comps.
6:12 PM ET: A question about same-day delivery competition from gig economy rivals. Also one about the success of MMORPG game New World.
Fildes: We’re very pleased with New World’s reception. Gaming is a fast-growing space and we see a number of ways in which we could serve various gamers. There’s the Luna cloud gaming service, Twitch, etc.
Olsavsky: We like our rapid-delivery model. We’re aware of the competition. We have over 170K products that we can deliver within 2 hours, and we see that expanding. There’ll be room for multiple winners in the space. But you need to have a cost structure that works.
6:09 PM ET: A question about Amazon could hike Prime prices as it invests more in video. And one about the ad business.
Olsavsky: We’re excited about the Prime Video content that’s coming out. We have nothing to announce about price increases. We weigh a number of factors when considering a price increase. Our main focus is to increase Prime’s value.
Fildes: We still have a lot of room to grow through our main ad businesses. Video ads are also an opportunity. Things like live sports and IMDb TV have been well-received.
6:06 PM ET: A question about Amazon’s Q4 expenses relative to a year earlier. And one about how permanent some expense increases will be.
Olsavsky: For labor, we think half of the cost growth is due to permanent wage increases, and the other half is due to incentives. We’ll have to work to lower our costs in other areas. COVID costs will be $1.5B lower in Q4 this year than last year. But costs will be higher for labor, trucking, etc., and there’ll also be less operating leverage. We tend to operate with more slack in the system as we near holiday cut-off dates.
Fildes adds that marketing spend will be up strongly this year.
6:01 PM ET: A question about margins for Amazon’s retail operations and whether they could improve next year. And one about its physical store efforts.
Olsavsky: We keep working to strengthen the retail flywheel via Prime, e-commerce, seller services, ads, etc. We see it all as part of the same offering. We’re not happy about our expenses for the next few quarters, but we see ourselves as a shock absorber. We’ll get through this period and will then focus on getting our cost structure down.
Fildes notes Amazon’s physical store efforts now cover a number of store types. Says Amazon’s goal is to raise the bar for what customers can expect from an omnichannel commerce experience. Notes the appeal of Amazon’s Just Walk Out tech (deployed at Amazon Go stores) and efforts to license it for use in third-party venues.
5:55 PM ET: A question about the holiday season, and one about AWS’ growth acceleration and margins.
Olsavsky: Last year, we used a Q4 Prime Day to pull some holiday season demand forward. That made it easier for us to handle the holiday season. We’ve done a lot of promotional activity this October.
For AWS, he reiterates that the pandemic accelerated some cloud migrations. Also notes that some pandemic-impacted businesses (for example, travel firms) are picking up their spending. Says margins will fluctuate quarter to quarter due to spending activity, and that Amazon will pass on cost efficiencies via lower pricing.
5:51 PM ET: A question about International losses, and one about Amazon’s rapid-delivery efforts.
Olsavsky: We have unfinished business in terms of our promise to make 1-day delivery the norm for Prime. Labor constraints have been a problem, but we’re aiming to ramp 1-day next year. Shorter delivery times open up more ways to serve customers.
For International, Olsavsky notes Amazon is at different stages in different countries, as it covers both relatively mature regions such as Europe and Japan as well as a number of emerging markets. Adds that Prime Video has been a key selling point in some newer markets. Says Amazon will make money long-term in International, and notes some international developed markets are also seeing labor and supply chain pressures.
5:47 PM ET: First question is about fulfillment capacity. Is the capacity needed per unit going up as Amazon lowers delivery times? Also a question about whether Prime investment could decline next year.
Olsavsky: Our fulfillment capacity covers transportation (in addition to warehouses). We were running at 100% capacity pretty much all of last year, and are now catching up. While paid units were up 8%, inventory space was up ~40%. We’re not forecasting our spending for next year. Spending growth rates could decline, but we plan to keep investing for the long term. Right now, our capacity constraint is labor.
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