On Oct. 24, Amazon.com, Inc. released their earnings report for Q3 2019. The result was less than favorable, with profits falling for the first time in two years. Amazon also released lower guidance, an estimate of future earnings, as the shopping season heats up and an increase in spending will become necessary.
As a consequence, shares fell 7% in after-hours trading, with the stock dropping and then recovering to end the day at an overall decline of 1%.
With total revenue up to $69.98 billion, from $56.58 billion at this point in time last year, the company is hardly in a declining phase. It is still rapidly growing and investing in new ventures but with this overstretching comes a cost. Earnings per share declined from $5.75 to $4.23, below analyst expectations of $4.59 earnings per share but higher than the expected $68.83 billion in revenue.
With an increased focus on one-day shipping, and with competition arising from the likes of Walmart Inc. in terms of shipping and Microsoft Corp. in the cloud-computing sector, Amazon is besieged on many sides.
With its rapid expansion, Amazon has often been labelled a disruptor — doing things quicker, cheaper and better.
As CEO Jeff Bezos said during the earnings announcement on Oct. 24, “Customers love the transition of Prime from two days to one day, they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers.”
Focusing on the longer term is exactly what the company needs as Amazon is setting itself up for an increasing volume of deliveries through its system of third-party carriers, drones and its personal fleet of delivery vehicles.
Amazon Web Services, one of Amazon’s fastest growing divisions and the majority of the its source of cash flow, is slowing growth as well, as it has reportedly increased revenue at 35%, down from last year’s high at 46%. Its biggest competitor, Microsoft’s Azure, slowed growth as well, from 64% the previous quarter to 59%. On Oct. 25, in a surprising blow to the e-commerce giant, Amazon lost the bid for the Joint Enterprise Defense Infrastructure contract to rival Microsoft.
Often seen as the front runner due to their prior experience with building military grade technology, such as their deal with the CIA, Amazon has stated that it is now “considering all options.”
In response to the decision, Amazon spokesman Drew Herdener said, “AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly led to a different conclusion,” according to The New York Times.The $10 billion JEDI deal meant to modernize the 30-year-old systems the Pentagon has been using is a big loss for Amazon.
With slowing growth and increased competition, what made Amazon stock so attractive in the past may now be gone. With many economists now predicting a recession within the next few years, only time will tell how all of this plays out for Amazon.
