Amazon’s profits surpassed the significant $1 billion mark for the fourth consecutive quarter, but revenue fell short of analysts’ expectations despite Prime Day, its most successful shopping event ever.
The Seattle-based retail giant’s net income increased to $2.9 billion in the third quarter, or $5.75 per diluted share, beating the consensus for $3.14. This was helped by Amazon’s high-margin businesses such as cloud services and advertising, as well its services for third-party sellers.
Of Amazon Web Services, Moody’s lead retail analyst Charlie O’Shea said the strong performance indicates that even in “a cut-throat competitive environment, Amazon is still able to avoid ‘buying business’ to continue to grow share”.
Revenue, however, came in at $56.6 billion, missing forecasts of $57.1 billion based on a FactSet Consensus, but up from $43.7 billion a year ago. The miss sent Amazon’s stock down around 9 percent in after-hours trading. The shares had risen 7.1 percent before the earnings report was released.
With a range of between $66.5 billion and $72.5 billion, Amazon’s sales expectations for the fourth quarter, the most important period for retailers because of the holidays, were also below Wall Street’s estimates of $73.79 billion.
At the same time, there will be some increased costs over the next three months in the form of pay after Amazon’s announcement that it would hike its minimum wage from $11 to $15 beginning Nov. 1. But during a call with investors following the release, Amazon’s chief financial officer Brian Olsavsky said this had been factored into fourth-quarter operating income guidance of $2.1 billion to $3.6 billion.
The move, thought to have been driven by a combination of political pressure and a tight labor market, gives a raise to more than 250,000 employees as well as 100,000 seasonal holiday workers. The company will, however, eliminate restricted stock options.
Analysts at Nomura have predicted that the net cost of increasing pay and eliminating benefits could be between $400 million and $1.9 billion for Amazon. This doesn’t take into account potential political relief and any improved employee turnover in response to its move to push up wages.
Another cost on the horizon for the online behemoth is postal services after the U.S. Postal Service said it wants to raise prices for Amazon by 9 to 12 percent, although Olsavsky brushed off concerns over potential increased shipping costs during the call. “We are not expecting the material impact from these rate changes in 2019. Annual rate increases from transportation partners is a really regular occurrence,” he added.
As for Amazon’s workforce, it continued to grow as the company entered a raft of sectors. It added 37,600 employees over the quarter, pushing up the total to 613,300. This is a big jump from 382,400 in the same period a year earlier, partly down to its acquisition of Whole Foods.
More jobs are on the way as Amazon is expected to create 50,000 at its $5 billion second headquarters, the location of which is still unknown, although 20 finalists have been selected. The short list includes Miami; somewhere in Maryland; Washington, D.C., and Chicago.