Amazon (Nasdaq: AMZN) shares were 2% lower following the company missing analysts' expectations on the top and bottom-line. It also issued Q4 guidance that came in below forecasts. The company seems to be struggling with fulfillment times, rising costs, and supply chain issues like many other companies.
Inside the Numbers
In Q3, Amazon reported $6.12 in earnings per share which missed expectations of $8.92 per share. This was a 50.5% decrease from last year's Q3. Revenue also missed expectations at $110.81 billion vs $111.6 billion. Overall, it was a 15% increase from last year, a decline from last year's pandemic-aided 37% growth rate. Some reasons for the decline are consumers going back to stores and returning to old shopping habits and inventory shortages.
Thus, the company is expecting Q4 sales between $130 billion and $140 billion which would be an increase between 4% and 12%, the company's slowest in many years. Analysts were forecasting $142 billion in Q4 revenue.
One headwind for Q4 is an increase of several billion dollars of extra costs in the consumer business due to labor shortages, higher labor costs, global supply chain constraints and increased freight and shipping costs as the company enters the holiday season.
Amazon has incurred additional costs to bolster its transportation channels and supply chains. This includes shipping ports and increasing the number of planes and trucks. The company also plans to hire 275,000 permanent and seasonal employees nationwide. In order to attract workers in a tight labor market, it's offering $3,000 sign-on bonuses and launching new perks like free college tuition.
As a result, operating profit is expected to be between $0 and $3 billion in Q4, a decline from $6.9 billion last year.
Q3 was also noteworthy as it was the first quarter in which services revenue exceeded product revenue. Services revenue includes AWS, advertising, third-party seller services, and Prime. AWS generated $16.1 billion in revenue, a 39% increase. This was above analysts' expectations. AWS also generated $4.9 billion in operating income which was significantly more than Amazon's e-commerce income of $880 million.
Stock Price Outlook
Currently, Amazon is off about 17% from it's all-time highs, set in early-July. Since then, the stock has been consolidating between 3,200 and 3,500.
Amazon has been hurt by supply chain issues and inflation. However, there are reasons to think these issues could improve which would be a nice tailwind to Amazon's earnings. If someone believes these issues are going to get worse, then the stock should be avoided.