Amazon Drops 4% after Missing Q3 Expectations and Muted Q4 Outlook

Amazon (AMZN) delivered worse-than-expected third-quarter results and provided Q4 guidance below analyst expectations as the company anticipates higher costs. As a result, shares fell 4% in Thursday’s extended trading session.

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The miss was primarily due to weaker-than-expected North American E-commerce sales growth as a result of the pandemic. Further, higher overall costs driven by labor shortages, higher wages, supply-chain challenges, and increased freight and shipping costs also led to the decline in profits.

`Disappointingly, adjusted earnings of $6.12 per share declined 51% year-over-year and fell far short of analysts’ expectations of $8.92 per share. The company reported earnings of $12.37 per share in the prior-year period.

Furthermore, net sales rose 15% to $110.8 billion but failed to meet consensus estimates of $111.6 billion.

Amazon Reduces Q4 Outlook Based on Higher Costs

For the upcoming fourth quarter, Amazon is projecting net sales in the range of $130 – $140 billion versus the consensus estimate of $142.5 billion. The guided sales imply growth of between 4% and 12% compared to the year-ago period. Operating income is expected between $0 and $3 billion, much lower than the $6.9 billion generated in the fourth quarter last year. (See Amazon stock charts on TipRanks)

Sharing his views on the future, Amazon CEO Andy Jassy commented, “In the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season.”

He further added. “It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

Wall Street’s Take

Following the quarterly results, Goldman Sachs analyst Eric Sheridan reiterated a Buy rating and a price target of $4,250 on Amazon.

Sheridan stated, “We expect investors to have a muted reaction to Amazon’s Q3 ’21 earnings report as key issues likely remain in terms of framing the overall online eCommerce environment and the costs needed to emphasize customers and sellers over short-term profit narratives.”

He further added, “Given the stock has underperformed (+7% vs SPX +39% in the last 12 months), we see AMZN increasingly as a compelling 12-month risk/reward from current levels of key dynamics that could drive forward share performance (capacity yielding volume as demand stabilizes, easy comps emerge and short-term holiday headwinds dissipate into 2022).”

Consensus among analysts is a Strong Buy based on 30 unanimous Buys. The average Amazon price target of $4,174.30 implies 21.1% upside potential to current levels.

AMZN scores a “Perfect 10” on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.