Amazon’s Shares Decline Due to Revenue Shortfall and Disappointing Forecast

Amazon’s Shares Decline Due to Revenue Shortfall and Disappointing Forecast

Category: News

Amazon's Shares Decline Due to Revenue Shortfall and Poor Forecast | Mr. Business Magazine

(Souce – Forbes)

Financial Performance and Market Reaction:

Amazon’s stock experienced a decline of up to 6% in after-hours trading following the company’s announcement of weaker-than-expected second-quarter revenue and a less optimistic forecast for the upcoming quarter. The e-commerce giant reported earnings of $1.26 per share, surpassing the $1.03 per share anticipated by LSEG. However, its revenue fell short of expectations, totaling $147.98 billion compared to the predicted $148.56 billion.

The company’s forecast for third-quarter revenue ranges from $154 billion to $158.5 billion, representing an 8% to 11% increase year over year. Despite this growth, the midpoint of $156.25 billion lags behind the average analyst estimate of $158.24 billion, according to LSEG. Due to these factors, Amazon’s shares declined as the company’s core retail business continues to face challenges from increasing competition, particularly from discount platforms like Temu and Shein, which enable Chinese merchants to sell inexpensive products to U.S. consumers.

Growth Trends in Key Segments:

Amazon Web Services (AWS) outperformed expectations with $26.3 billion in revenue, slightly above the projected $26 billion. However, advertising revenue of $12.8 billion fell short of the expected $13 billion, according to StreetAccount. The online stores segment saw a modest 5% year-over-year sales growth, while revenue from third-party seller services, including commissions, fulfillment, and shipping fees, increased by 12%.

Brian Olsavsky, Amazon’s Chief Financial Officer, attributed the revenue shortfall in North America to consumers opting for lower-priced products, resulting in a reduced average selling price (ASP). He stated, “Consumers are exercising caution in their spending and are gravitating towards lower-priced items.” In response to this trend, Amazon plans to introduce a discount store featuring primarily unbranded items priced below $20, offering apparel, home goods, and more.

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Challenges and Competitive Landscape:

Despite AWS achieving 19% growth compared to the previous year, it is expanding at a slower pace than competitors like Microsoft and Google, which reported cloud growth of 29%. While Amazon’s advertising revenue rose by 20% to $12.77 billion, it narrowly missed estimates, contributing to Amazon’s shares decline.

Amazon’s net income doubled from the previous year, reaching $13.5 billion, or $1.26 per share, up from $6.75 billion, or 65 cents per share, reflecting extensive cost-cutting efforts. Olsavsky mentioned that part of the guidance weakness is attributed to consumers being distracted by global events, including the recent Olympics in Paris and the attempted assassination of Donald Trump. He noted, “During major events, we observe shifts in consumer attention, impacting traffic patterns.”

In the broader online advertising landscape, Meta reported the strongest quarterly revenue growth at 22%, while Google’s ad business grew by 11%. Snap also saw a 16% increase in revenue compared to the previous year. Amazon anticipates third-quarter operating income to range between $11.5 billion and $15 billion, compared to $11.2 billion in the same period last year, although analysts surveyed by StreetAccount expected $15.3 billion.

Overall, Amazon’s shares decline faces challenges as it navigates the competitive retail landscape and addresses shifting consumer preferences. The company’s efforts to adapt to these dynamics will be closely watched by investors and analysts in the coming months.

Also read: Amazon Slashes Jobs at Prime Video and MGM Studios; Staff Urged to Review Internal Memo