Amazon tumbles on disappointing forecast for holiday revenue

Bloomberg

Amazon.com Inc. issued a disappointing revenue and profit forecast for the busy holiday quarter, suggesting sales growth is slowing for the e-commerce giant while higher pay for warehouse workers could hurt the bottom line.
Revenue will be $66.5 billion to $72.5 billion in the current period, the Seattle-based company said in a statement, falling short of analysts’ average estimate of $73.8 billion. Operating income will be $2.1 billion to $3.6 billion, Amazon said. Analysts projected $3.9 billion.
Investors are worried about the weak profit outlook and the increased pace of spending, said RJ Hottovy, an analyst at Morningstar Inc. Are expenses increasing as a result of one-time costs such as preparing for a second headquarters or ongoing items like raises for warehouse workers and opening new AmazonGo cashier-less convenience stores? he asked.
“It all comes down to not knowing why they expect to have heavier spending in their busiest quarter,” he said.
Amazon’s total operating expenses increase 22 percent to $52.9 billion in the third quarter. The company this month pledged to pay all warehouse workers at least $15 an hour, which will affect 400,000 employees in the US and UK, Chief Financial Officer Brian Olsavsky said. Amazon isn’t disclosing the total cost of the raises.
While Amazon’s sales forecast missed estimates, US shoppers are projected to increase their online spending by as much as 22 percent this holiday season, according to Deloitte Insights. Amazon is poised to benefit from that shift, capturing almost half of all US online sales, according to EMarketer Inc. The company has dominated e-commerce in the US, but faces stepped-up competition from rivals like Walmart Inc.
Revenue gained 29 percent to $56.6 billion in the third quarter. Analysts’ projected $57.1 billion. It was the second consecutive quarter that sales fell short of estimates and the first time for the back-to-back revenue miss in almost four years.
The company showed slowing revenue growth in all categories quarter over quarter, including online sales and subscription sales, Amazon Web Services sales and its fast-growing advertising business. Amazon has relied on the growth of its Prime members, estimated at about 97 million in the US, who pay fees in exchange for shipping discounts, video streaming and other services.
Investors are wondering whether Amazon is reaching a saturation point. Growth in its central business of selling merchandise online has slowed quarter-over-quarter for four consecutive periods. “That’s a bit concerning,” said Brian Yarb-rough, analyst at Edward Jones & Co. “They aren’t taking massive market share the way they were three or four years ago.”