Amazon stock experienced a sharp decline of over 8% on Friday, following the e-commerce giant's release of a lackluster profit and revenue outlook that fell short of Wall Street's expectations. The disappointing forecast has left investors questioning the company's growth prospects and its ability to navigate an increasingly competitive market.
The Seattle-based company reported its second-quarter earnings after the bell on Thursday, revealing a mixed bag of results. While Amazon's total sales rose 10% year-over-year to $148 billion, this figure narrowly missed analysts' projections of $148.8 billion. The company's profit, however, doubled compared to the same quarter last year, reaching $13.5 billion.
Despite the impressive profit growth, investors remained fixated on Amazon's underwhelming forecast for the current quarter. The company anticipates revenues between $154 billion and $158.5 billion, falling short of the $158.43 billion predicted by analysts, according to Bloomberg data. Furthermore, Amazon expects its operating income to range from $11.5 billion to $15 billion, which is lower than the $15.2 billion forecasted by Wall Street.
This disappointing outlook comes at a time when major technology firms are grappling with investor concerns over substantial expenditures on artificial intelligence (AI). Any signs of weakness in core operations have intensified scrutiny from investors, as evidenced by the sharp decline in Amazon stock price.
Despite the setbacks in its e-commerce division, Amazon's cloud computing arm, Amazon Web Services (AWS), remained a bright spot. AWS reported revenue of $26.3 billion for the quarter, surpassing the consensus estimate of $26 billion and marking a significant increase from the $22.1 billion reported in the same quarter last year. Olsavsky indicated that AWS is on track to surpass $105 billion in annual revenue.
Analysts from JP Morgan and BMO Capital Markets expressed satisfaction with AWS's growth, which has accelerated for the third consecutive quarter. They believe that AWS is well-positioned to capitalize on a return to modernization, especially as new workloads emerge in the cloud. Additionally, they suggest that despite perceptions of Amazon lagging in AI, the company is poised to be a significant beneficiary in that field, having already developed a multi-billion dollar business in AI.
However, the e-commerce landscape remains challenging for Amazon, as it faces increasing competition from companies like Temu and Shein, which focus on affordable products and utilize a direct-from-factory supply chain model. Reports suggest that Amazon is working on its own discount digital marketplace to directly compete for spending in fashion and lifestyle categories.
The disappointing earnings report from Amazon comes on the heels of mixed results from other tech giants. Microsoft surpassed expectations on both revenue and profits but failed to meet cloud revenue targets, resulting in a drop in its shares. Alphabet, the parent company of Google, reported weaker-than-expected YouTube ad revenue, which alarmed investors. In contrast, Meta garnered positive attention from Wall Street, reporting better-than-anticipated results for both revenue and profit, despite warnings from executives about “significant” capital expenditures expected in 2025.
As Amazon navigates this challenging period, investors will be closely monitoring the company's ability to adapt to shifting consumer preferences, maintain its competitive edge in the e-commerce space, and capitalize on the growth opportunities presented by its cloud computing division. The coming months will be crucial for Amazon as it seeks to reassure investors and demonstrate its resilience in the face of mounting pressures.
