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Amazon (AMZN) Stock Still Looks Strong Despite Q3 Revenue Miss
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Amazon (AMZN - Free Report) shares dropped over 8% through early morning trading Friday after the company posted third-quarter financial results that underwhelmed investors. Sure, Amazon fell short of top-line Wall Street estimates, but was the third quarter really all that bad for the e-commerce giant?
What Scared People
Amazon saw its quarterly revenues jump roughly 29% from $43.7 billion to reach $56.6 billion. This fell short of the Zacks Consensus Estimate that called for revenues of $57.06 billion. Investors were also disappointed to see Amazon’s updated fourth-quarter revenue guidance of between $66.5 billion and $72.5 billion come in below Q4 Wall Street estimates as well as our $73.87 billion estimate.
The alarming part here is that Q4 should be a strong quarter because it includes the key holiday shopping period that often boosts retailers big and small. But Amazon is no longer just a giant retailer and its insane growth has made it harder and harder to post massive year-over-year revenue gains.
Amazon’s revenue miss and lowered guidance could set the company up for its worst single day of trading since it sunk 11% in January 2014. Yet, at this point, it seems that we need to decide if the law of large numbers in business growth finally caught up to Amazon.
Simply put, the bigger you get the harder it is to keep pumping out 40% growth every quarter. And if this does prove to be the case, is it a bad thing? That is a question that individual investors must decide for themselves because the company is certainly still a juggernaut.
The Good
Investors for years only worried about Amazon’s top line growth, but now its bottom line might finally become the star of the show, or at least a co-star.
Amazon posted adjusted quarterly earnings of $5.75 per share, which destroyed our $3.29 per share estimate and marked over 1,000% growth from the year-ago period’s $0.52 per share. The third quarter marked the second straight period that Amazon posted insane earnings growth that also blew away expectations. In fact, Amazon posted its second straight quarter of record profitability.
Clearly, this wasn’t enough to make investors happy, for now. But the fact that Amazon is becoming a more profitable company as it continues to expand its reach in brick-and-mortar retail, advertising, consumer tech, and much more, is a good sign.
Plus, the company’s operating cash flow surged 57% to $26.6 billion over the trailing twelve months. Amazon is also attracting more enterprise level retail clients through Amazon Business.
“Amazon Business has now reached a $10 billion annual sales run rate and is serving millions of private and public-sector organizations in eight countries,” CEO Jeff Bezos said in a company statement. “And we’re not slowing down—Amazon Business is adding customers rapidly, including large educational institutions, local governments, and more than half of the Fortune 100.”
AWS
Amazon’s AWS cloud computing business has long been a cash cow, and it will likely continue to be despite growing competition from rivals Microsoft (MSFT - Free Report) , IBM (IBM - Free Report) , and Google (GOOGL - Free Report) . It seems that investors were displeased with AWS’ Q3 performance, yet its 46% jump from $4.584 billion in the year-ago period to hit $6.679 billion matched our NFM estimates.
Sure, this marked slightly slower growth than Q2’s 49% jump and Q1’s 48%. But AWS’ third-quarter growth still came in above the final three quarters of 2017.
Subscription Services
Another positive sign is Amazon’s subscription business, which soared 52% to touch $3.698 billion to beat our NFM estimate. This unit includes annual and monthly Amazon Prime membership fees, along with audiobook, e-book, digital video, digital music, and other non-AWS subscription services.
Subscription services’ quarterly growth was down from 55% in Q2 and 59% in the year-ago quarter. With that said, subscription services’ growth rate came in above Q4 2017.
Therefore, investors should still be pleased with the unit’s expansion because it helps drive e-commerce purchases and creates brand loyalty over rivals Walmart (WMT - Free Report) and Target (TGT - Free Report) . Furthermore, Amazon Prime subscription growth helps the company better compete against Netflix (NFLX - Free Report) , and soon enough Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and AT&T (T - Free Report) in what is sure to be a streaming TV future.
Bottom Line
Obviously, investors have come to expect the world from Amazon’s revenue growth, and the missed came as a shock. But as the cliché goes...
So even if the days of 40% top-line growth are over, Amazon looks poised to continue to become more profitable as it remains a giant in e-commerce, cloud computing, streaming entertainment and much, much more. This includes a new push into the pharmaceutical industry.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Amazon (AMZN) Stock Still Looks Strong Despite Q3 Revenue Miss
Amazon (AMZN - Free Report) shares dropped over 8% through early morning trading Friday after the company posted third-quarter financial results that underwhelmed investors. Sure, Amazon fell short of top-line Wall Street estimates, but was the third quarter really all that bad for the e-commerce giant?
What Scared People
Amazon saw its quarterly revenues jump roughly 29% from $43.7 billion to reach $56.6 billion. This fell short of the Zacks Consensus Estimate that called for revenues of $57.06 billion. Investors were also disappointed to see Amazon’s updated fourth-quarter revenue guidance of between $66.5 billion and $72.5 billion come in below Q4 Wall Street estimates as well as our $73.87 billion estimate.
The alarming part here is that Q4 should be a strong quarter because it includes the key holiday shopping period that often boosts retailers big and small. But Amazon is no longer just a giant retailer and its insane growth has made it harder and harder to post massive year-over-year revenue gains.
Amazon’s revenue miss and lowered guidance could set the company up for its worst single day of trading since it sunk 11% in January 2014. Yet, at this point, it seems that we need to decide if the law of large numbers in business growth finally caught up to Amazon.
Simply put, the bigger you get the harder it is to keep pumping out 40% growth every quarter. And if this does prove to be the case, is it a bad thing? That is a question that individual investors must decide for themselves because the company is certainly still a juggernaut.
The Good
Investors for years only worried about Amazon’s top line growth, but now its bottom line might finally become the star of the show, or at least a co-star.
Amazon posted adjusted quarterly earnings of $5.75 per share, which destroyed our $3.29 per share estimate and marked over 1,000% growth from the year-ago period’s $0.52 per share. The third quarter marked the second straight period that Amazon posted insane earnings growth that also blew away expectations. In fact, Amazon posted its second straight quarter of record profitability.
Clearly, this wasn’t enough to make investors happy, for now. But the fact that Amazon is becoming a more profitable company as it continues to expand its reach in brick-and-mortar retail, advertising, consumer tech, and much more, is a good sign.
Plus, the company’s operating cash flow surged 57% to $26.6 billion over the trailing twelve months. Amazon is also attracting more enterprise level retail clients through Amazon Business.
“Amazon Business has now reached a $10 billion annual sales run rate and is serving millions of private and public-sector organizations in eight countries,” CEO Jeff Bezos said in a company statement. “And we’re not slowing down—Amazon Business is adding customers rapidly, including large educational institutions, local governments, and more than half of the Fortune 100.”
AWS
Amazon’s AWS cloud computing business has long been a cash cow, and it will likely continue to be despite growing competition from rivals Microsoft (MSFT - Free Report) , IBM (IBM - Free Report) , and Google (GOOGL - Free Report) . It seems that investors were displeased with AWS’ Q3 performance, yet its 46% jump from $4.584 billion in the year-ago period to hit $6.679 billion matched our NFM estimates.
Sure, this marked slightly slower growth than Q2’s 49% jump and Q1’s 48%. But AWS’ third-quarter growth still came in above the final three quarters of 2017.
Subscription Services
Another positive sign is Amazon’s subscription business, which soared 52% to touch $3.698 billion to beat our NFM estimate. This unit includes annual and monthly Amazon Prime membership fees, along with audiobook, e-book, digital video, digital music, and other non-AWS subscription services.
Subscription services’ quarterly growth was down from 55% in Q2 and 59% in the year-ago quarter. With that said, subscription services’ growth rate came in above Q4 2017.
Therefore, investors should still be pleased with the unit’s expansion because it helps drive e-commerce purchases and creates brand loyalty over rivals Walmart (WMT - Free Report) and Target (TGT - Free Report) . Furthermore, Amazon Prime subscription growth helps the company better compete against Netflix (NFLX - Free Report) , and soon enough Disney (DIS - Free Report) , Apple (AAPL - Free Report) , and AT&T (T - Free Report) in what is sure to be a streaming TV future.
Bottom Line
Obviously, investors have come to expect the world from Amazon’s revenue growth, and the missed came as a shock. But as the cliché goes...
So even if the days of 40% top-line growth are over, Amazon looks poised to continue to become more profitable as it remains a giant in e-commerce, cloud computing, streaming entertainment and much, much more. This includes a new push into the pharmaceutical industry.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>