Amazon released its earnings for the third quarter of the year. It missed on overall revenue and AWS revenue, which caused the stock to drop around 10-percent in after hours trading. Amazon's revenue for the quarter was $56.6 billion versus the $57.10 billion that was expected by analysts. On the AWS front, revenue was $6.68 billion versus the $6.71 billion that was expected. Amazon did beat on EPS actually, with $5.75 versus the estimated $3.14. This wasn't a huge miss for Amazon, about $500 million miss on revenue for the quarter, which isn't a big miss, when Amazon did already bring in $56.6 billion.
Breaking down Amazon's financials for the quarter, operating cash flow was $26.6 billion which is up 57-percent from the same period a year ago. Free cash flow was $15.4 billion for the trailing twelve months, up from the $8 billion from the trailing twelve months ending September 30, 2017. Net sales increased 29-percent, to $56.6 billion for the quarter. That's about $5.75 per diluted share, and that's compared with a net income of $256 million, or $0.52 per diluted share in the quarter. Amazon's founder and CEO, Jeff Bezos mentioned in a prepared statement that "Amazon Business has now reached a $10 billion annual sales run rate and is serving millions of private and public-sector organizations in eight countries." Bezos continued by stating that "we're not slowing down – Amazon Business is adding customers rapidly, including large educational institutions, local governments and more than half of the Fortune 100." Amazon Business is a pretty big part of Amazon's business, and so AWS or Amazon Web Services. AWS added several new customers during the quarter, which includes DoorDash, Hubspot and Samsung Heavy Industries, which are all using AWS as their Preferred Public Cloud Provider. This is the segment that is still growing rather rapidly for Amazon right now, and even though it didn't hit the revenue that analysts expected, it was still a huge increase from the previous quarter.
During the quarter, Amazon announced a slew of new hardware devices including the Echo Dot, Echo Plus, Echo Show, Echo Auto, Echo Wall Clock, Fire HD 8 Tablet, Kindle Paperwhite, and Fire TV Recast to name a few. These products were announced during the third quarter, but weren't actually available until October which is the fourth quarter. So we won't know how well these products do for Amazon until the next quarterly earnings come out.
Background: Like Alphabet, Amazon usually does have some pretty big quarters, with some monstrous earnings numbers. Of course, Amazon's biggest segment right now is net sales from items sold from Amazon's website. And that is because Amazon does sell just about everything on its website, so everyone goes there to buy everything. But Amazon has been less reliant on its sales from products on Amazon.com lately, especially with its cloud service beginning to really boom. Amazon has been competing with Google's cloud services in recent years, but Amazon has been able to pick up some rather big customers for AWS, including VMWare, BP, GE, Capital One, Hess, Netflix and many more. These are big contracts for Amazon and really bring in a lot of money for Amazon. AWS has been growing pretty quickly for Amazon in recent quarters, with double-digit growth each quarter.
The holiday season will still be a big quarter for Amazon this year, even with Amazon expecting to only bring in around $66 billion in net sales, that is still a $10 billion increase from the third quarter and is definitely nothing to sneeze at. It's also likely that Black Friday could be one of Amazon's biggest single-sales days of all-time. Lately, Prime Day has been their biggest single-sales day of all time, with the previous Prime Day doing a big number for Amazon. Black Friday doesn't usually beat Prime Day due to the fact that Prime Day is about a day or day and a half like this year. While Black Friday usually starts the Wednesday before Thanksgiving and lasts through Cyber Monday (the Monday following Black Friday), which is nearly a week of sales, allowing people to have more time to buy stuff for their shopping list this holiday season. This year, Black Friday takes place on November 23, and Cyber Monday will be taking place on November 26. So if you are looking to get started on your shopping list before then, that is definitely the time to do so.
Impact: Amazon did also release guidance for the fourth quarter of the year, which is typically Amazon's largest quarter due to the holiday shopping season, and Amazon is one of the bigger retailers for Black Friday and Cyber Monday sales. Net Sales are slated to be $66.5 billion and $72.5 billion which is actually below the analyst consensus of around $73 billion. This is still a 10-percent to 20-percent growth compared to the fourth quarter of 2017. That's also a big difference from the third quarter, of around 16-percent. Operating income is expected to be between $2.1 billion and $3.6 billion. That is compared to the $2.1 billion for the fourth quarter of 2017. Amazon also notes that these guidance assumes "that no additional business acquisitions, investments, restructurings or legal settlements are concluded."
This shows that the holiday season may not be as big as it has been in the past for Amazon. While $66 billion in net sales is still nothing to sneeze at, it does show that the growth is starting to slow down for Amazon in the fourth quarter. The fourth quarter is the most important quarter for Amazon, due to Black Friday and Cyber Monday occurring, and since Amazon does sell virtually everything on its website, it does better than most other retailers do during the holidays. So it'll be interesting to see how the quarter goes for Amazon when it is announced in late January. Amazon's stock price dropped as much as 10-percent in after-hours and pre-market trading. When the market opened today, it only dropped about eight-percent, and this was because of the disappointing guidance to many investors. This could end up being Amazon's biggest single-day drop since January 2014, where it dropped 11-percent after its Q4 2013 earnings. If you've been looking to pick up some shares of Amazon, now might be the time to do so.