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Amazon's second quarter underscored its ongoing dominance in all things retail and cloud services, but some squishy aspects to the earnings release have investors in profit-taking mode.
Shares of the tech beast dropped more than 6% in pre-market trading on Friday after the company surprisingly missed on sales estimates. Several factors in the report are likely weighing on the minds of investors.
First, the headline sales miss marked the first time Amazon (AMZN) missed consensus revenue forecasts in three years. Analysts pinned the shortfall on slowing sales at Amazon's retail division as people become more mobile after getting vaccinated for COVID-19. Recall that a year ago at this time Amazon was posting mind-blowing sales gains as the pandemic kept consumers inside and ordering online to an extent never seen before.
Amazon execs told analysts on the earnings call that Prime member spending has moderated amid a pickup in mobility.
Second, Amazon's third-quarter guidance lacked oomph as the company continues to invest in fulfillment capacity and workers to support its growth. Moreover, the company outlined a $1 billion operating profit hit in the quarter due to COVID-19 related costs.
For the third quarter, Amazon sees sales growth of 10% to 16% (slower than the second quarter rate of 27%). Operating profits are pegged in a range of $2.5 billion to $6 billion (Street forecast was for $8.1 billion).
And then a few odds and ends are unlikely sitting well with investors. On the earnings call, Amazon execs declined to commit to a second Prime Day event this year (though it has been rumored). And Amazon's new CEO Andy Jassy wasn't on the earnings call — it appears he will follow the route of his former boss Jeff Bezos in that regard.
Nevertheless, here's how Amazon performed compared to Wall Street analyst forecasts for the second quarter:
Revenue: $113.08 billion versus $115.06 billion expected
Diluted EPS: $15.12 versus $12.22 expected
Amazon Web Services (AWS) Revenue: $14.81 billion versus $14.18 billion expected
Despite the mixed quarter and stock reaction, the Street mostly came out in defense of Amazon's stock. Analysts at Piper Sandler, Truist, Barclays, Keybanc and Baird all reiterated their buy ratings on Amazon's stock.
"Amazon is planning to continue investing aggressively in logistics despite expanding capacity by 50% in 2020. The headwind to operating income from startup inefficiencies at newer facilities is being exacerbated by a tight labor market and pull forward of Prime benefits like video in new markets. As these temporary cost headwinds abate, we see operating income margin and free cash flow better reflecting the benefit of faster growth in AWS/advertising. We think Amazon is also adding capacity in order to eventually launch broader same-day delivery offerings, which should help support core-Retail in light of increased mobility and extend the competitive moat," said Jefferies analyst Brent Thill in a research note to clients.
Thill reiterated his buy rating and $4,200 price target on Amazon shares.
Yahoo Finance tech editor Dan Howley contributed to this story.