Amazon Slides on Christmas Sales Slowdown

Friday 26 October 2018

A disappointing sales forecast for the Christmas season sent Amazon shares sliding on Thursday night.

The online giant said it expected year-on-year sales growth of 10% to 20% for the three months to 31 December.

That would be a marked slowdown from the 29% jump in sales for the most recent quarter to $56.6bn.

Amazon also made record profits of $2.9bn in the period, compared with $256m last year.

That marked a fourth consecutive quarter of more than $1bn in profit for the Seattle-based company and came despite a 21% rise in operating expenses.

Added costs came from investment in its Prime membership scheme, offering home delivery from Whole Foods stores and creating more original content for Amazon Prime Video.

The profit surge has been partly driven by divisions outside its extensive retail operation.

Revenue from AWS, its cloud services business, increased 46% year-on-year to nearly $6.7bn for the quarter to 30 September.

"Other" revenue - a category that primarily includes the firm's advertising business - jumped 122% to almost $2.5bn.

Retail remains the firm's biggest source of revenue, with the strongest growth in North America.

But it is facing increasing competition, as other retailers - including low cost giants such as Walmart - focus on online sales.

Online sales in the third quarter totalled more than $29bn, 10% higher than from last year.

Amazon's physical retail locations - most of them associated with the Whole Foods grocery chain the firm acquired last year - brought in about $4.2bn.

Amazon expects sales in the fourth quarter between of $66.5bn and $72.5bn.

On a call with analysts, executives blamed the somewhat modest Christmas season forecast on factors such as currency fluctuations.

They also said comparisons were complicated by changes to the business, such as the acquisition of Whole Foods.

Chief financial officer Brian Olsavsky said consumer demand remained healthy: "We're very bullish on the fourth quarter - we'll just have to see where revenue comes in."

After ending 7% higher, shares fell almost 8% in after-hours trading in New York. Amazon stock has jumped nearly 40% this year.

The underlying strengths of Amazon's business remain, despite the disappointing forecast, said equity analyst George Salmon of Hargreaves Lansdown.

He added that the high expectations for the company had raised the share price to levels where swings were to be expected.

Neil Saunders at GlobalData Retail said the retail landscape had been shifting: "There is more online competition in online retail than there has ever been, and that competition is more effective than it has ever been.

Source: BBC News

Date: 26th October 2018