Amazon Stock Slides After it Gives Weak Outlook Amid Recession Fears Inc.

AMZN -4.06%

Estimated sales in the current quarter will fall far short of expectations, sending its stock plunging and providing the latest clear sign of how shifting economic forces are playing out for tech giants that thrived during the pandemic.

The company said Thursday that sales in the recently ended third quarter rose 15% from a year earlier, while net income was $2.9 billion — its first quarterly profit in 2022, though still down 9% from the same period last year.

The e-commerce giant surprised investors with a revenue estimate of $140 billion to $148 billion in the current period — more than the $155 billion analysts expected, according to FactSet. Amazon, which said the estimate included a big hit from foreign-exchange factors, also said it expected operating income to be anywhere between zero and $4 billion, reflecting uncertainty in what is traditionally the biggest quarter of the year due to holiday shopping. doing.

The company’s shares fell more than 14% in after-hours trading following the results. If they stay low, Amazon’s valuation will fall below $1 trillion, which it first hit in 2018.

The pessimistic outlook capped an unusually long day that saw shares of other tech giants fall after their results showed worsening conditions in various sectors.

Shares of Facebook parent Meta Platforms Inc., already battered over the past year, fell nearly 25% on Thursday after it reported its second consecutive quarterly revenue decline a day earlier. Microsoft Corp. No

The stock also fell on Tuesday after its worst net income decline in more than two years and weakest revenue growth in five years. Google-Parent Alphabet Inc.

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Similarly, slow sales disappointed investors.

These tech companies thrived during the pandemic, as life and work suddenly shifted more to the Internet, boosting sales and spurring already fast-growing companies to boost hiring and investment.

Now, one by one, the engines that drove that growth are sputtering. Sales of personal computers and other gadgets are declining. Inflation-ridden consumers are cutting back their spending drastically, while companies are tightening their spending on everything from digital advertising to IT services.

“There’s obviously a lot going on in the macroeconomic environment, and we’ll be balancing our investments to make them more streamlined without compromising our long-term, strategic bets,” Amazon Chief Executive Andy Jesse said Thursday.

In the third quarter, Amazon’s online store sales fell 7% to $53.48 billion in the most recent quarter. The segment consists primarily of product sales on its flagship site and digital media content. Its online sales were boosted by its annual Prime Day sales, which fell in the third quarter this year from the second quarter last year.

Despite being the country’s largest online store, Amazon’s e-commerce division has struggled for growth this year. In the second quarter, the company reported a 4% year-over-year decline in its online stores segment. It marks the biggest drop since the metric was first reported in 2016.

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This year, Amazon’s e-commerce machine — which has grown at breakneck speed for a decade — is showing signs that it may be entering a phase of slower growth. After a multibillion-dollar infrastructure build-out and hiring spree, it now faces concerns of high inflation and a recession weighing on consumer spending.

Chief Financial Officer Brian Olsavsky said the company has entered a period of caution.

“We are preparing for what may be a period of slow growth like most companies. We will be very careful on our hiring,” Mr. Olsavsky said during a call with reporters on Thursday. “We’re definitely looking at our cost structure and looking for areas where we can save money.”

He said Amazon is “seeing signs all around that people’s budgets are tight, inflation is still high.”

Analysts say the new challenges Amazon may face in the e-commerce sector.

Amazon has the largest share of online commerce, about 38%, but its market share has peaked in recent years, according to market research firm Insider Intelligence. Analysts say the size of the company means the e-commerce unit’s growth is unlikely to have the same impact as it did earlier. Amazon is also dealing with increased competition from Walmart Inc.,

target Corp.

and others.

Mr. Jassi has turned to cost cutting. The company cut back on subleasing millions of square feet of additional warehouse space and postponed opening new facilities while previously thinning its hourly workforce through attrition.

It implemented a year-end hiring freeze in its corporate retail division, the segment that drives core sales and is responsible for much of this year’s slowdown. The company has put hiring freezes among some teams in its Amazon Web Services cloud-computing division.

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While Amazon’s earnings continue to be helped by AWS and its expanding advertising business, growth in the cloud business has slowed. AWS posted sales of $20.5 billion during the third quarter, a 27% increase but one of the lowest rates of growth posted by the unit in recent quarters. Mr. Olsavsky said the company has seen AWS customers “work to cut their bills.”

Amazon’s ad revenue grew 25% to $9.5 billion.

Amazon is heading into the end of the year with additional challenges. After saying it needed fewer blue-collar workers earlier in the year, it has looked to add more than 100,000 workers to its warehouses to meet expected holiday demand. However, that strategy has come with a cost. Amazon recently said it would spend $1 billion to raise the average starting salary nationwide to $19 an hour and is allocating millions more to increase wages and benefits for its delivery workers.

Consumers will be more likely to return to brick-and-mortar stores for their holiday shopping this year, and analysts say economic concerns will weigh on spending. Amazon’s own Jeff Bezos seemed cautious about the future. He recently said that the US It’s time to “batt down the hatches,” referring to the warning signs that a recession is on its way.

Write to Sebastian Herrera at [email protected]

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