Amazon Stock Hits 52-Week Low Following Q4 Sales Guidance

Amazon shares hit a 52-year low at $97.66 Friday after Q4 revenue guidance was below analysts’ projections. Shares closed 6.8% lower at $103.41. The revenue guidance for the holiday quarter is $140 billion-$148 billion, for 2%-8% growth, said Chief Financial Officer Brian Olsavsky on the company’s Thursday earnings call.

Amazon’s Q4 guidance was “substantially below [analysts’] consensus estimates,” Wedbush analyst Michael Pachter wrote investors Friday. Q3 results were in line with guidance due to positive impacts of Prime Day, ad sales growth and Amazon Web Services growth, Pachter said. Longer term, Amazon “should benefit from steady margin expansion driven by the continued growth of its cloud and ads businesses,” he said.

Olsavsky cited continuing impact from inflation, higher fuel prices and rising energy costs that crimped Amazon's sales growth “as consumers assess their purchasing power” and organizations evaluate their technology and advertising spending. Sales growth moderated as Q3 progressed, while foreign currency exchange rate headwinds grew. Amazon expects 460 basis points of unfavorable impact in exchange rates year over year in Q4.

The company is acting to “tighten our belt,” Olsavsky said, including pausing hiring in some businesses and “winding down products and services” where it makes sense.

Olsavsky noted sales events for Prime Day, including the October Prime Early Access sale, have “lesser profitability” due to the volume of deals that take “a bit of margin.” He attributed that to the high volume of device sales during the Prime Day events. “We don’t make money on the device; we make money on the use of the device,” he said, “so that always can end up hurting profitability in the quarter.”

In-stock levels for this holiday season “are really high,” Olsavsky said, and delivery speeds “are getting very close to where we want them to be.” Though Amazon is “optimistic” about the holiday season, it’s “realistic” that “there’s various factors weighing on people’s wallets, and we’re not quite sure how strong holiday spending will be vs. last year," he said.

“We do see some of the consumers are cutting their budgets and trying to save money in the short run,” Olsavsky said. “When faced with an uncertain economy or some kind of discontinuous event, customers tend to double-down on companies that they believe have the best customer experience and that take care of them the best.”

Amazon grew sales 15% in Q3 to $127.1 billion, registering about $5 billion in unfavorable impact from foreign exchange rates vs. Q3 2021, the company said. North America sales increased 20% year on year to $78.8 billion; international sales fell 5% to $27.7 billion, largely due to foreign exchange rate differences. Amazon Web Services revenue rose 27% vs. a year ago to $20.5 billion. Net income was down 9% to $2.9 billion.

Wedbush expects the macroeconomic situation to improve over the next year, due to the state of employment. “Amazon’s core customer is employed and solidly middle class, and its product offering, while largely discretionary, is offered at competitive prices and is conveniently delivered for 'free.'” Pachter said. Amazon is “best positioned to withstand a decline in spending and to rebound more quickly than its competitors when the economy inevitably improves,” he said.