Lending Association

Amazon’s third quarter report adds to tech sector woes

Now, it’s down to Apple next Thursday after Amazon’s solid third-quarter numbers failed to set its share price on fire, leaving the Nasdaq poised for another frustrating session on Friday to end a down week.

Amazon lifted third-quarter revenue by 13% to $143.1 billion, more than tripled net earnings to $9.9 billion (helped by a massive $1.2 billion paper gain on its investment in the Rivian electric truck maker), showed signs of a loss in growth in its leading cloud computing business, lifted ad revenues to $12 billion for the quarter, but gave a half-hearted forecast for sales in the current fourth quarter.

After a gentle bounce after hours, Amazon shares at first turned down in the late session by around a quarter of a percent, to go with its 1.5% slide in the regular session, and a 6% slump in the last three days.

But that was trimmed late in the after-hours session when sentiment turned and the shares were up 2.2%. Will Nasdaq be saved on Friday?

Shares in Meta, though, did OK after hours on Wednesday after it reported better-than-expected figures but saw its shares slide 3.7% on Thursday, while Apple shares fell 2.4%, and Alphabet added a 2.6% drop to its 9.6% slump the day before.

Microsoft shares caught the bug and dropped 3.7% on Thursday after its good result earlier in the week, and Netflix, the best of all the big techs so far this reporting season, saw its shares lose 1.87% in value.

All of this saw Nasdaq lose 1.76% in value on Thursday to fall deeper into correction territory, down more than 12.5% since its last peak and over 10% in the past three months.

The year-to-date gain is now down to 20.3% from more than 39% at the June 30 halfway mark for the year.

So did Amazon add to the tech pain on Thursday?

Well, its much-awaited fourth-quarter sales forecast was OK, but less than market forecasts.

Amazon said fourth-quarter sales, which include the key holiday period, will be between $160 billion and $167 billion.

The market expecting revenue of $166.6 billion, and at the midpoint of its guidance range, revenue of $163.5 billion would represent growth of 9.6% from $149.2 billion a year earlier.

That was OK for most of the market, but seeing third-quarter revenue jumped 13%, analysts took the fourth-quarter forecast as a hint of a slowdown in what is usually the company’s best quarter.

Like the rest of the sector, Amazon has been hacking into costs and jobs for the past year, laying off 27,000 employees in a year and killing off some of its profitless diversions.

Meta, Microsoft, Netflix, and Amazon have all shown the benefits of old-fashioned cost-cutting, especially jobs.

CEO Andy Jassy, who succeeded founder Jeff Bezos two and a half years ago, says the cost-cutting efforts are paying off.

“We had a strong third quarter as our cost to serve and speed of delivery in our Stores business took another step forward, our AWS growth continued to stabilize, our Advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” Jassy said in a statement.

Sales in Amazon’s core e-commerce business continued to recover, expanding 7% year over year, after growing 4% in the previous quarter. The September quarter includes the results of this year’s Prime Day promotion, which took place in July.

Digital advertising again did well for Amazon, as third-party sellers and large brands lifted their ad spending. Ad revenue increased 26% from a year earlier to $12 billion. That’s much faster than Google’s ad growth, which was 9%, and topped Facebook’s ad growth of 23%.

In cloud computing, however, Amazon lost ground. Amazon Web Services, which is ahead of the cloud businesses of Microsoft and Google, grew revenues 12% in the latest quarter, slower than Microsoft’s 29% surge at Azure, its cloud business, and 22% for Google.

Cloud is still seen as a growth area in tech (but nowhere near as much as AI), and to lose ground to rivals will keep analysts wondering about Amazon’s market value.

So it’s all down to Apple to pull a figure or two out of its accounts to shock and bring joy (better sales in China would be helpful) to an increasingly battered Magnificent Seven, faded FAANGs, and skeptical investors.