The online technology giant, Amazon (AMZN, Financial), posted its third quarter results on October 23 which were not very impressive and instead were pretty disappointing, missing analysts’ estimates and adding to the worries of the investors invested in the company’s stock. Since Amazon is trying to outpace conventional discount stores like Walmart (WMT, Financial) by launching several online programs for consumers, and the online retailer is developing everything from mobile phones and Hollywood-style production to grocery deliveries, investors were expecting to see the company delivering sustainable profits in the long run. However, the dim results posted by Amazon have cast dark clouds on its future. Let’s check in to find out what happened in the quarter and how it has affected the company’s outlook in the near future.
The weak quarter numbers
In this quarter, Amazon had diversified its business line by beginning to sell a slew of new electronic gadgets to the public and completed the acquisition of Twitch, one of the largest acquisitions in its history. However, such forward steps taken from the company’s end failed to drive the bottom line as losses continue to widen.
For the three months that ended on September 30, the Seattle-based company reported a third-quarter net loss of $437 million, compared to the $41 million loss posted in the similar quarter last year. Earnings came much below the analysts’ consensus who was expecting an average loss of $0.74 per share, which stood at a loss of $0.95 per share at the end of the quarter.
Net sales were reported to be $20.58 billion, falling in line with the company’s projected sales range of $19.7 billion to $21.5 billion. But this figure came a bit lower than the average estimate from analysts, who had anticipated net revenue to be $20.84 billion. The sales miss can be attributed to the flop of the new Fire Phone that was launched this spring that forced the company to slash its price to manage the growing inventory.
Holiday quarter guidance lowered
The company has forecasted weaker-than-expected net sales to be between $27.3 billion and $30.3 billion. This represents nearly 17% to 18% growth over the fourth quarter of 2013, and is below the analysts’ estimate of $30.89 million. Also, the management seems cautious as it has predicted that the series of operating loss is going to continue in the near future and has projected the operating loss for the fourth quarter to be around $430 million to $570 million, compared to the loss of $510 million in the fourth quarter of the previous fiscal year.
CFO Tom Szkutak has told reporters that a stronger dollar has made the company lower its forecast by about 2.5 percentage points. In fact the growth projection of net revenue failed to convince the investors who were expecting the growth pace of at least 20% in the upcoming quarter.
Stock moves in negative territory
The miss on earnings translated to its shares tumbling after the stock market closed on Thursday. The market capitalization of Amazon saw a whopping $15 billion being wiped off, and prompting analysts to ask what financial members were important to the company and its board. To all the speculative analysts’, the CFO’s answer was on a traditional tone noting that the company was interested in generating free cash flow and return on invested capital, rather than on individual margins.
Amazon’s shares were down nearly 11% after the dismal results of the third quarter were out, pulling the price down to $279 as of 6.21 pm in New York.
Concluding words
Amazon has been trailing under the pressure of its futile investments in the first half of the year which has led to its near future forecast to be in the “red” zone instead of in the “green.” But the management knows how to generate returns when in investment mode, and investors can keep a watch on how the company performs in the coming quarter to take the ultimate decision of staying invested or moving out from the Amazon stock.
