Amazon.com Inc on Thursday forecast revenue and profit for the holiday quarter below expectations, as it faces fierce competition and rising costs from its plan to speed up delivery times globally, APA reports citing Reuters.
Shares fell 7%, as revenue growth for the company’s lucrative cloud computing business also slowed down in the third quarter, missing analysts’ estimates. Amazon beat expectations on overall third-quarter revenue, posting sales up 24% to $70 billion.
The news underscores the costly investment Amazon is making to cut delivery times to one day for its Prime loyalty members, a way to outmaneuver rivals such as Walmart Inc that have marketed two-day shipping without subscription fees.
It also reinforces worries that the ongoing U.S.-China trade spat is hurting the U.S. retail industry. Holiday sales typically generate a majority of retailers’ revenue and profit.
Fast delivery on countless goods has helped the world’s largest online retailer attract more than 100 million paid subscribers to Prime, who keep returning to take advantage of their membership and other perks like music and television streaming. Amazon acquired the U.S. grocer Whole Foods Market and has rolled out a popular lineup of voice-controlled Echo speakers to lure still more customers to transact with the Seattle-based company.
“AWS has fueled Amazon’s margin expansion of late but the continued softening in growth rates will weigh on the company’s profits if they can’t reverse the trend,” said eMarketer Analyst, Andrew Lipsman. “At the same time, the advertising and commerce sides of the business look very strong as investments in next-day shipping, though eating into the bottom line in the near term, are paying fast dividends on the top line,” he said.
Shipping costs are rising faster than before, up 46% to $9.6 billion in the third quarter, Amazon reported. The company’s net income fell to $2.13 billion from $2.88 billion a year earlier.
Amazon forecast fourth-quarter net sales in the range of $80.0 billion to $86.5 billion for the crucial holiday quarter. Analysts were expecting revenue of $87.37 billion, according to IBES data from Refinitiv.
Amazon also said it expects holiday-quarter operating income to be between $1.2 billion and $2.9 billion, while analysts were expecting $4.19 billion, according to research firm FactSet.
Net sales rose to $69.98 billion from $56.58 billion in the third quarter ended Sept. 30, beating estimates of $68.81 billion, according to IBES data from Refinitiv.
Amazon’s business model has drawn some scrutiny. Earlier this year, the European Commission launched an antitrust probe into whether Amazon’s use of other merchants’ data gave it an unfair advantage in retail. Some sellers have complained about Amazon’s ability to create private-label versions of their products, a criticism that U.S. presidential hopeful Senator Elizabeth Warren has echoed.