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Amazon sales forecast, slower AWS growth disappoint investors

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Amazon sales forecast, slower AWS growth disappoint investors
FILE PHOTO: The logo of Amazon is seen at the company logistics centre in Boves, France, September 18, 2019. REUTERS/Pascal Rossignol   -   Copyright  PASCAL ROSSIGNOL(Reuters)
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By Noor Zainab Hussain

(Reuters) – Shares of Inc <AMZN.O> fell nearly 6% in early trading on Friday, as investors were let down by a lower-than-expected sales outlook and surprised by slower revenue growth at its lucrative AWS cloud business.

As many as 16 brokerages cut their price targets on the stock. Analysts said higher costs to keep its one-day delivery Prime members happy played a big part in weaker profits.

“Going forward, it is difficult to assess when Amazon will once again begin to deliver profit upside. We think that the buildout of next day delivery is likely to take several quarters, and don’t expect a return to outsized profits anytime soon,” said Wedbush Securities analyst Michael Pachter.

Amazon’s median price target is $2,220, a 33% premium to where its shares are indicated to open.

Although sales rose 24% to $70 billion (£55 billion) in the third quarter, its prediction of $80 billion to $86.5 billion sales in the fourth quarter fell short of the $87.4 billion analysts were expecting, according to IBES data from Refinitiv.

Amazon was again hurt by heavy investments to speed up deliveries to its Prime members as it tries to beat back Walmart Inc <WMT.N>, which is swiping market share.

Amazon expects costs to cater to Prime members to nearly double to $1.5 billion during the holiday season from what it spent on one-day delivery during the second quarter.

Holiday sales typically pull in a major share of retailers’ revenue and profit.

Graphic: Amazon investors faced with not-so-merry Christmas –

Interactive graphic on Amazon’s holiday quarter:

But Amazon also disappointed on slower revenue growth for Amazon Web Services, the company’s traditionally lucrative cloud business.

Daniel Liu, research analyst at Canalys, said Microsoft Corp’s <MSFT.O> Azure cloud business narrowed its gap with AWS during the third quarter. AWS accounts for nearly a third of the global cloud market.

Graphic: Amazon’s cloud business slows in third quarter –

Interactive graphic on Amazon’s cloud business:

“There have been some creeping concerns about consumer activity … and if Amazon is tempering expectations, it says a lot about the industry,” CMC Market analyst David Madden, said.    

Most analysts, however, stood by Amazon’s long-term prospects.

“Whether all the extra investment will be worth it in the end is perhaps open to question, especially given the lacklustre sales guidance for next quarter. But it’s been foolish to doubt Amazon in the past,” Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Graphic: Amazon’s rising costs –

Interactive graphic on Amazon’s costs:

(Reporting by Noor Zainab Hussain, Uday Sampath and Ambhini Aishwarya in Bengaluru; Editing by Bernard Orr)

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