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Amazon Q3 Earnings Prove a Flop As Growth Halts

In its second quarterly miss, Amazon's most recent earnings seem a bit less exciting with drops in FCF, revenue growth, and net income.
Credit | Amazon

In what seems to have become a recurring theme for the company, Amazon posted its second miss in EPS and revenue, thanks to slowing growth in its primary business.

Compared to estimates, Amazon reports Q3 earnings consisting of:

  • Earnings Per Share | $6.12 vs $8.92 expected (31% miss)
  • Revenue | $110.81 billion vs $111.6 billion expected (0.7% miss)
  • Sales Growth | 15% vs 37% last year

These earnings left investors, analysts, and Amazon executives with a bad taste in their mouths, bolstered by comments by Amazon CEO Andy Jassy:

“We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter—and you can see that during every phase of this pandemic.”

Compared to the profit-centric ex-CEO Jeff Bezos, Jassy has already taken a heavier ESG approach, combining environmental, social, and governance approaches over the previous goals set by previous executives. However, Jassy isn’t entirely to blame — many other online sellers, such as eBay and Shopify, have shown growth slowdown as well, exponentially decayed thanks to the sudden lack of lockdowns and stay-at-home orders.

This was likely a significant factor in the leaving of Jeff Bezos as CEO, handing down the reigns to Jassy as growth began to slowdown. Even before the now-CEO took his position in July 2021, Amazon had its first miss in at least four quarters.

Q2 2021 brought an EPS beat of 23%, followed with a revenue miss of 1.74%. While that’s not bad by any means, it was in stark contrast with the consistent mid-single digit revenue beats and over 60% EPS beats. With revenue growth slowing and EPS underperforming comparatively, it seems Jassy got the short end of the stick, taking a falling position to keep Jeff Bezos associated with positive earnings beats and high growth output.

However, there was still some light at the end of the tunnel. Even with growth decelerating from 37% to 15%, a 60% drop, Amazon Web Services, the company’s shining star, continued to grow exponentially.

In fact, compared to last year’s whopping 29% growth (which underperformed the rest of Amazon), AWS’ sales growth accelerated to 39%, nearly three times that of the rest of the consolidated giant.

AWS ended up pushing out $16.1 billion in revenue, for an operating margin of $4.9 billion dollars. Compared to the surprising operating loss presented by Amazon international sales (with a fall to 16% growth from 37%), AWS held up operating margins, even if not as high as hoped.

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Still, the beat for AWS is a welcome for Amazon investors (yours truly), and a sign that things might not be as bad as expected. After all, AWS picked up an increase in sales share, now sitting at 15% compared to last year’s 12%.

It’s not great though, with the company’s estimates still placing Q4 sales at between a 4% and 12% growth YoY. Additionally, Amazon included an operating profit estimate of between $0 and $3 billion, upwards of a complete wipeout compared to last year.

Hopefully though, Amazon will be able to navigate out of these issues, reducing the company’s exposure to current fleet issues, supply chain mistakes, and slowing sales. We’ll just have to wait, and see though. Make sure to check back at as the news rolls in.

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