Amazon surprised investors with profits and sales that came in below
expectations, as well as a surprisingly subdued forecast. But analysts say the ecommerce giant’s third-quarter report also has plenty to cheer about -- including exceptional strength in AWS and
in long-term investments that are likely to pay off in both merchant and customer loyalty.
The Seattle-based company posted $110.81 billion in third-quarter revenue. That’s a record high
and a 15% increase over the comparable period last year, but still lower than the industry consensus forecast of $111.6 billion.
Net income sank to $3.2 billion, compared with $6.3
billion. The company defended the steep decline in its announcement. “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,” says Andy Jassy, Amazon CEO. “You can see that during every phase of this pandemic.”
One example is
that it has nearly doubled the size of its fulfillment network since the pandemic began.
Amazon also predicts bumps as it navigates “labor supply shortages, increased wage costs, global
supply chain issues, and increased freight and shipping costs,” Jassy says, “all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season.
It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”
Amazon also gave an update on its Just Walk Out technology.
The company is integrating the tech into two new Whole Foods Market locations, as well as stores in the Javits Center store in New York City -- its first use in a convention
center; the Climate Pledge Arena in Seattle; and the Forum store in Los Angeles, its first in a West Coast arena.
For the fourth quarter, it expects net sales
between $130 billion and $140 billion, representing a gain of between 4% and 12% compared with fourth-quarter 2020.
While the results triggered a flurry of worried headlines,
Wall Street experts seem unfazed.
The results “highlight Amazon’s willingness to sacrifice near-term profitability in pursuit of long-term customer/merchant loyalty, which should
ultimately drive pricing power,” writes Jason Helfstein, who follows the company for Oppenheimer.
And while the fourth-quarter outlook falls short of Oppenheimer’s projections,
“we are encouraged by outperformance in high-margin Amazon Web Service,” he adds, as well as by the 50% increase in Amazon’s advertising business.
However, observers are
watchful of the ways labor shortages might impact the bottom line. “Looking ahead, Amazon should be able to meet fourth-quarter holiday demand but at a cost,” writes Michael Pachter, who
covers Amazon for Wedbush Securities.
This year, “management is using promotional activity in October to pull-forward shopping to avoid challenges brought about by an inconsistent stream
of workers,” he writes, “including having to redirect inventory placement to better-staffed fulfillment centers. Ultimately, redirecting inventory leads to less optimal placement, as well
as longer and more expensive transportation routes.”