Amazon badly misses on earnings and revenue, gives disappointing fourth-quarter guidance

Earnings

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Andy Jassy, chief executive officer of Amazon.Com Inc., during the GeekWire Summit in Seattle, Washington, U.S., on Tuesday, Oct. 5, 2021.
David Ryder | Bloomberg | Getty Images

Amazon will report third-quarter earnings after the market close on Thursday.

Here’s what analysts are expecting:

  • Earnings: $8.92 per share, according to analysts surveyed by Refinitiv
  • Revenue: $111.6 billion, according to analysts surveyed by Refinitiv

Amazon faces numerous challenges, including global supply chain constraints along with rising labor and logistics costs. It also has to contend with tough comparisons to its financials from a year ago, when the pandemic spurred a surge in e-commerce.

In its last earnings report, Amazon issued conservative sales guidance for the current quarter, reflecting the company’s expectations that more shoppers are heading back to stores and are spending on other things like travel.

Amazon’s third-quarter report is expected to show revenue growth of 16% from a year earlier. That’s a deceleration from the first and second quarters, when growth was 44% and 27%, respectively.

To cope with supply chain challenges, Amazon said it’s adding new shipping ports globally to get products closer to customers and has doubled container processing capacity. It’s also boosted the size of its fleet of trucks and planes and invested to ensure it has enough inventory on hand.

Consulting firm MWPVL International expects Amazon to add 175 million square feet to its fulfillment network this year, up 44% from 2020.

“With a vast warehousing and logistics network, and a healthy [third-party] marketplace, Amazon may be more insulated from supply chain constraints than competitors,” wrote Bank of America analysts Justin Post and Michael McGovern, who recommend buying the stock, in a report on Monday. “But some out of stock items and a tighter shipping window will drive an unusual 4Q.”

Rising costs tied to hiring and fulfillment expansion are likely to weigh on Amazon’s bottom line during the quarter.

Amid a tight labor market, Amazon raised wages to an average of $18 an hour and is dangling incentives such as $3,000 sign-on bonuses and free college tuition. The company is looking to bring on 275,000 permanent and seasonal employees nationwide, partly to assist with the holiday shopping rush.

For profits, Amazon continues to count on its fast-growing cloud-computing business, which accounted for well over 50% of operating income in the second quarter. Analysts surveyed by FactSet project revenue at Amazon Web Services to increase 34% from a year earlier $15.5 billion for the third quarter.

Amazon’s revenue from advertising, included in its “Other” category, is expected to surge 53% year-over-year to $8.3 billion. In recent earnings reports, social media companies Facebook and Snap saw revenue take a hit from Apple’s iOS 14.5 privacy changes, which allow consumers to opt out of targeted ads on apps. Unlike its peers, Amazon’s ad business is expected to be insulated from the iOS update, owing to its strong direct relationship with consumers.

One drawback for the ads business could be the potential for brands and sellers to limit or reduce ad spend due to supply constraints. Snap last week warned that supply chain woes and labor shortages could generate a pullback in ad spend, and Microsoft finance chief Amy Hood told analysts this week to “watch the advertising market through the quarter because, obviously, their willingness to spend is entirely connected to their supply as well.”

Amazon shares have increased 6.5% this year, while the S&P 500 has climbed 22%.

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