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Amazon’s second-quarter earnings were a surprising dud July 27, causing some alarmed investors to sell off their shares as the stock price took a hit.
The world’s largest online marketplace, which went public 20 years ago, fell way short of Wall Street analysts’ expectations in its Q2 2017 report, missing profit forecasts by more than a dollar a share and providing a less-than-robust outlook for the third quarter.
A number of investors got nervous and divested the stock on the news. In after-the-close trading, the stock was down a non-trivial $29 a share, or nearly 3 percent, to $1,017.
Here’s why: Amazon reported earnings per share of 40 cents, while Wall Street Bloomberg analysts were expecting $1.02 more at $1.42 a share. A year ago period, Amazon posted $1.78 a share.
Revenue wasn’t the problem at $38 billion; analysts were expecting $37.2 billion. Amazon had posted sales of $30.4 billion in Q2 2016, so the upward trend remains strong; the company’s total revenue grew by 25 percent.
Amazon said $4.1 billion of its revenue came from cloud-computing unit Amazon Web Services, which also was slightly higher than expected. Overall service revenue increased 42 percent to $13.2 billion.
However, profits took a major hit, as indicated by the EPS numbers noted above. Net income was an alarming 78 percent miss–$197 million, down from $857 million in Q2 2016.
As for Q3 guidance, Amazon expects to post revenue of between $39.25 billion and $41.75 billion. It expects its operating results to range from an operating loss of $400 million to an operating profit of $300 million. That’s quite a range.
CFO Brian Olsavsky said on the conference call to analysts, journalists and investors that rapidly rising expenses had an impact on Amazon’s bottom line. Marketing costs jumped 44 percent from the second quarter last year to $2.2 billion; Amazon’s spending on technology and content jumped 43 percent to $5.5 billion over the same period.
Its delivery costs increased 33 percent to $5.2 billion. Overall, the company’s operating income was down 51 percent from the second quarter of 2016 to $628 million.
Olsavsky said that Amazon has been hiring thousands of software engineers and sales representatives for its AWS business. The company also been investing in new warehouses, digital video for its streaming video service and in promoting its Echo smart-speaker products, he said.
During the quarter, Amazon said it intends to acquire Whole Foods market chain for $13.7 billion. There is no change in that plan at this time.