With Amazon reporting its earnings tomorrow, the hanging question is whether Q4 will avoid the disappointments that rocked the company’s stock price after Q3’s results were disclosed.
The last earnings report was far from filled with bad news. Amazon reported that delivery is growing, Prime membership is holding firm despite price increases, multi-channel offerings are expanding, advertising revenue is quickly growing and earnings came in ahead of expectations.
But investors were worried by an unexpected Q3 revenue miss. Amazon reported $56.6 billion in total revenue — a 29 percent increase year-on-year, but short of the $57.10 billion the Street had been looking for pre-report. The weakness seems to have been pushed by sluggish global sales. North American sales came in at $34.3 billion, a 35 percent increase from last year. International sales, on the other hand, only increased 13 percent year on year. Amazon also continues to lose money on international sales, but is losing less money over time. Global losses were $385 million, compared to $936 million at this time last year.
Analysts were also put off by Amazon’s forecast for the holiday season. The eCommerce giant predicted a revenue range of $66.5 billion and $72.5 billion, a 10 percent to 20 percent year on year increase. Analysts, on the other hand, had been forecasting $73.79 billion, and the significant gap worried the market, despite assurances from CFO Brian Olsavsky that Amazon was anticipating a strong sales season.
“We feel like we are in great shape for the holiday — we are seeing great capacity for retail products and great capacity for shipping to our customers; we are raring to go, selection should be at its highest point,” Olsavsky noted. “We are very bullish on the fourth quarter.”
The market didn’t agree, and Amazon saw its lowest stock price closing in six months post report.
When Amazon reports tomorrow, it seems that revenue figure will be the first major point of interest. Analysts are forecasting $71.61 in revenue and earnings of $5.65 a share. The “whisper number,” which is the Street’s unofficial view on earnings, is $5.76, according to Forbes.
“This season was our best yet, and we look forward to continuing to bring our customers what they want, in ways most convenient for them in 2019. We are thrilled that in the U.S. alone, more than one billion items shipped for free this holiday with Prime,” said Jeff Wilke, CEO of the worldwide consumer division at Amazon.
Subscription figures will also be a key area of interest – the markets are curious as to how Prime membership is holding up, as the majority of their customers have now paid the increased price for the first time since it was announced in 2018.
The fourth quarter has also historically been the time when subscription revenue generally falls off a cliff for Amazon. Year-on-year growth in subscriptions has been above 50 percent in every quarter except the fourth for the last two years: During Q4 2016, it fell to 36 percent, and in Q4 2017 it dropped to 47 percent. Analysts will be looking to see if 2018 will be the year that Amazon can keep its subscription numbers above 50 percent on the quarter.
Investors will also likely be looking for an Alexa update – though if previous reports are any indication, that update will likely include some limited information about devices sales during the holiday season, and not much in the way of specifics.
Amazon’s advertising revenue could also be an area of interest, particularly after it became clear last quarter that Amazon’s up-and-coming ads business is taking a bite out of Google’s revenue.
“We’re seeing a larger-than-expected slowdown in Google properties’ revenue, representing its core search business,” eMarketer Analyst Monica Peart wrote in an email. “This is likely related to the ramp-up in competition from Amazon, as consumers increasingly turn to the eCommerce giant for their product searches.”
That trend got a lot of attention last fall. Whether it carried forward into Q4 (and presumably into 2019) will be clearer after Amazon (and Alphabet) report this week.