Amazon reported $2.9 billion in Q3 net profit, up more than 1,000% from the $256 million net profit generated a year earlier — marking the fourth straight quarter when the company has cleared profits of at least $1 billion.
But even after posting record profits, revenue and Q4 outlook still missed Wall Street estimates, sending the company’s stock down more than 8% in after-hours trading on Oct. 25. The quarter included results from Amazon Prime Day on July 16, which alone reportedly drove $4.2 billion in revenue and 100 million products sold.
In Q3, Amazon saw growth in three key areas:
- Earnings Per Share (EPS): $5.75 vs. $3.14 estimated, according to Refinitiv;
- Revenue: $56.6 billion (up 29%) vs. $57.1 billion estimated, according to Refinitiv; and
- Amazon Web Services (AWS) revenue: $6.68 billion (up 46%) vs. $6.71 billion estimated, according to FactSet.
Meanwhile, Amazon said it expects sales during Q4 to range between $66.5 billion and $72.5 billion, which is less than analysts’ expectations. The Q4 projections include the expected impact of the $15 minimum wage taking effect in November for nearly 250,000 U.S. hourly customer service and logistics employees. The higher minimum wage will cost Amazon $415 million in 2018 and $1.5 billion next year, according to Jefferies analysts.
Ad Sales Double To $2.5 Billion, But Amazon Seeks To Control Expenses
Sales attributed to the company’s “other” category, primarily advertising, more than doubled to $2.5 billion. The category also includes its own products and revenue from the Prime Video service. This is the third-straight quarter this category has exceeded $2 billion, revealing that Amazon has increasingly learned to compensate for the high costs of fast shipping by controlling expenses and generating revenue in more areas.
Expense control appears to be a major theme for Amazon going into 2019, especially since the company has expanded into various new businesses and categories in recent years.
“We have looked to really leverage our investment from the last couple years and as we've funded and moved, invested in a lot of new areas as we've talked about — AWS, devices, digital content. We've had a lot of movement within the company that has filled a lot of those roles,” said Brian Olsavsky, CFO of Amazon, during an earnings call. “We're only up 13% on head count through nine months year-over-year. Again, the theme here is going to be banking some of the investments from prior years and looking to gain greater control.”
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