Amazon (AMZN) Investors See Halloween Come A Little Early; Spooks Investors With Downside Q4 Guidance
3:31 pm Friday, October 28th, 2022
Amazon (AMZN) is under pressure today following its Q3 earnings report last night. As we stated in our preview, we had several concerns heading into this report. Revenue rose 14.7% yr/yr to at $127.1 bln, which was within prior guidance of $125-130 bln, but was slightly below consensus.
As Q3 progressed, AMZN says it saw moderating sales growth across many of its businesses and that was evident in the weak guidance for Q4 with revenue of $140-148 bln and operating income of $0-4 bln. AMZN concedes that the macro environment remains challenging worldwide. Inflation, fuel prices and rising energy costs have caused consumers to reassess their purchasing power and has made companies re-evaluate their technology and advertising spend. FX has also been a headwind.
AWS was not great either as revenue (constant currency) has been slowing pretty quickly in recent quarters: +28% CC in Q3, +33% CC in Q2, +37% CC in Q1, +40% CC in Q4 last year. Also, segment operating margin fell to 26.3% vs 30.3% last year. On the call, AMZN conceded that it has seen an uptick in AWS customers focusing more on controlling costs. We were bracing for a weak number following MSFT’s Azure weak result and we got it. AMZN does not guide for AWS but MSFT pointed to a big sequential drop in DecQ, so that makes us nervous about AWS next quarter.
The one positive surprise was maybe its Advertising Services segment, which posted +30% CC revenue growth. That is up from +21% CC in Q2 and +25% CC in Q1. However, AMZN said on the call companies are tightening the belt for online ad spend.
It has not been a great week for mega cap tech names with META, MSFT and GOOG and now AMZN all falling sharply lower following earnings. AMZN had already traded lower heading into this report, but we think the weak Q4 guidance, which is the all-important holiday quarter, really spooked investors. I guess we are learning that even tech names are not impervious to macro conditions.
