Stocks tumble on weak results at Amazon, Alphabet

Jermaine Castillo
October 27, 2018

The third-quarter results were the second time running that billionaire Bezos' firm had fallen short of sales targets and, allied to a similar disappointment from Google-owner Alphabet (GOOGL.O), they sent a shockwave reverberating through stock markets.

Indeed, shareholders seemed to focus on the negative. Analysts had forecast $3.11 per share.

It will cost Amazon an extra $333 million to fund its higher salaries during the fourth quarter, according to Cowen, a financial research company.

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Internet titans Google and Amazon came under an investor cloud after posting disappointing sales updates, with the search leader also on the defensive for reportedly hushing up sexual misconduct. Additionally, analysts have slashed their earnings outlook for the fourth quarter by 9% to $5.35 per share. Revenue jumped 29 percent to $56.6 billion, below a projected $57.10 billion.

Revenue from Amazon's global business, which brings in 27.5% of total sales, rose 13.4 percent in the third quarter, missing estimates, and decelerating from a 27% year-on-year expansion in the previous quarter.

Amazon Web Services is now contributing more operating income than North America, with $2.077 billion operating income reported for the quarter, versus $2.032 billion for NA. The majority of stocks within the S&P 500 are already either in correction or in bear territory, with the latter representing a decline of more than 20 percent.

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"A lot of that is based on efficiencies of our data centers, not only for the AWS business but also for our Amazon consumer businesses, AWS's biggest customer", he said. The company forecast an operating income range between $1.4 billion and $2.4 billion, compared with $347 million a year earlier.

On the brighter side was data that showed gross domestic product increased at a 3.5 percent annualized rate in the third quarter as a tariff-related drop in soybean exports was partly offset by the strongest consumer spending in almost four years and a surge in inventory investment. It purchased online pharmacy PillPack in June, which followed its US$13.7 billion acquisition of Whole Foods previous year to jump start its grocery business. Again, while the Street expected somewhere around $73 billion for the important holiday quarter, Amazon told investors to expect anywhere from $66.5 billion to $72.5 billion.

And the company continued to see success in advertising.

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Amazon has already committed to invest at least $5 billion in India, and is expected to commit even more investments towards India, where it is now locked in a bruising market share battle against local rival and Walmart-backed Flipkart.

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