Amazon Shares Fall on Disappointing Earnings

In its second-quarter earnings release, Amazon reported mixed results that did not meet profit expectations for the first time in history.  While the online marketplace did exceed revenue forecasts, this surprising data suggests that Amazon’s interior investments are, in fact, driving sales growth but only at the expense of lower profit margins. 

But even as its growth rate is still accelerating—albeit slightly slower than usual—shares of Amazon dropped more than 2 percent in after-hours trading when the company lowered third-quarter profit guidance.   Specifically, the numbers indicate that Earnings per share came in at $5.22, which is lower than the $5.57 analysts had expected.  Revenue, again, registered higher than expected—at $63.4 billion instead of $62.5 billion—with Amazon Web Services falling short of its $8.5 billion estimates, at $8.38 billion. 

Still, it is important to note that Amazon revenue jumped 20 percent over the same period last year.  That is notably better than the 16.8 percent they posted in the first quarter—its slowest pace in four years.  Apparently, the recovery comes after Amazon pledged to spend $800 million in the second quarter to improve warehouses and its imperative delivery infrastructure, upon which Amazon’s flagship one-day shipping (for Prime members) will rely. Analysts predict—as Amazon hopes—these extremely short delivery times will eventually lead to more frequent purchasing and, ultimately, higher revenue. 

However, all of this spending has cut into Amazon’s typically soaring profit margins and that has brought down earnings.  Net income for the digital marketplace was $2.6 billion; the lowest earnings report since the second quarter of last year, and contributing to four consecutive quarters of decline.  Most notably, though, Amazon has forecast third-quarter operating income will register between $2.1 billion and $3.1 billion, significantly lower than the $4.4 billion many had estimated. 

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