Amazon (AMZN) reported third-quarter sales and earnings results that missed Wall Street’s estimates, reflecting a growth deceleration after the pandemic stoked a surge in online shopping last year and earlier in 2021.
The company also flagged that it would see additional costs as a result of supply chain challenges in the fourth quarter. Shares dropped by more than 4% in late trading.
Here were the main metrics from Amazon’s report, compared to consensus estimates compiled by Bloomberg:
Revenue: $110.8 billion vs. $111.81 billion expected, $96.15 billion Y/Y
Earnings per share: $6.12 vs. $8.96 expected, $12.37 Y/Y
Amazon’s key online store sales fell short of expectations in the third quarter, contributing to the slowdown in overall revenues. E-commerce sales were up 3% over last year to $49.94 billion, missing estimates for $51.53 billion.
At $110.8 billion, Amazon’s overall sales were up 15% over last year, representing a marked slowdown from the prior quarter’s 27% growth rate. Still, this was a fourth consecutive quarter of revenue topping $100 billion.
Amazon’s results did get a boost from its flagship Amazon Web Services cloud computing platform, which grew revenue by 39% to reach $16.1 billion. This high-margin business has been consistently outgrowing Amazon’s massive e-commerce unit, and its growth rate in the third quarter posted a surprise acceleration compared to the second.
Wall Street, however, homed in on Amazon’s guidance for the fourth quarter, which included expectations for a jump in costs as a result of global supply chain shortages and freight concerns.
“In the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” Amazon CEO Andy Jassy said in the company’s earnings release. “It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”
Amazon’s stock has underperformed the market since its latest earnings report in July, when the company had already offered a forecast for third-quarter sales that disappointed compared to Wall Street’s expectations. At the time, Amazon’s management attributed the deceleration to difficult comparisons to last year’s results, which had been boosted by pandemic-related lockdowns.
Shares of Amazon dropped by 5.8% from July 29 through Wednesday’s close, lagging compared to the S&P 500’s 3% gain during that period.
Wall Street was also nervously awaiting the results to see how the company navigated rising input costs and supply chain challenges, especially heading into the key holiday season.
The company ramped its hiring plans even further in the third quarter, expanding its sizable workforce and creating additional labor costs. Just last month, Amazon announced plans to bring on another 125,000 fulfillment and transportation employees at an average rate of $18 per hour, on top of another 40,000 corporate workers it announced it would be adding just weeks earlier. Overall, the company has added over 450,000 workers in the U.S. since the pandemic began.
“Concerns across top line, bottom line, and broader macro have collectively driven cautious sentiment into year-end,” wrote JPMorgan analyst Doug Anmuth in a note last week. “However, we believe there is still significant secular shift toward e-commerce ahead and Amazon has a very strong track record around investing into future growth opportunities.”
Meanwhile, some analysts said Amazon’s advertising business would benefit from Apple’s recent iOS data privacy changes, which negatively impacted results and guidance at social media company Snap (SNAP) and exerted some pressure at Facebook (FB), Twitter (TWTR) and Alphabet’s (GOOGL) YouTube ad business during the quarter. Unlike these online media platforms, Amazon has the ability to continue tracking the behavior of its Prime subscribers on its site, giving advertisers more ability to monitor their campaigns even if users opt out of ad tracking on Apple’s software platform, some analysts pointed out.
“Amazon should continue to benefit from Apple’s recent privacy changes as advertisers turn to a company that is able to track the behavior of over 200 million Prime customers, including which ads they saw or clicked or purchased from, regardless of whether or not the user chose to opt into being tracked by Apple,” wrote Wedbush analyst Ygal Arounian in a note ahead of Thursday’s report.
Amazon’s “other” business unit, which mostly includes advertising along with some other services, grew to $7.9 billion in the second quarter, representing a jump of 83%.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck