After a stormy week of financial reports of the tech giants, the online trading and cloud computing company Amazon released its reports for the third quarter (July-September) today (Thursday) at the end of trading on Nasdaq. The company reported revenues of $127.1 billion, below the average analyst forecast of $127.46 billion. Amazon’s earnings per share in the quarter were 28, above an early forecast of 22 cents.
The stock reacts with an 18% crash in late trading, mainly because it provided a disappointing forecast for the fourth quarter. The company expects revenues of 140-148 billion dollars, which will reflect a growth of 2-8 percent compared to the corresponding quarter last year. The market expectation was for revenues of 155 billion dollars, due to the strong holiday season.
Aggressive cost cutting to improve the bottom line
During the peak days of the Corona virus, Amazon grew at a record pace, but this year the company faced a slowdown in the growth of its base business in online sales, as a result of the return of customers to travel, spend time and shop in physical stores after the epidemic, at the expense of targeted shopping. Added to this were the challenging macroeconomic conditions with rising inflation and rising interest rates.
Despite the challenging conditions, the analysts predicted that Amazon would return in the third quarter to double-digit growth of 15% compared to the corresponding quarter last year, partly due to the annual discount event “Prime Day” that Amazon held for 48 hours in July. In the last three quarters, Amazon’s revenue grew in single digits only.
Under CEO Andy Jesse, who replaced founder Jeff Bezos in July 2021, Amazon has also adopted a strategy of aggressive cost-cutting, through subleasing warehouse space, hiring freezes and halting or canceling projects, to improve the bottom line. Amazon Suffers from the rising cost of fuel, energy and transportation that negatively affects its expense structure. In the last two quarters, Amazon recorded a loss on the bottom line as a result of high costs combined with the decline in the value of its investment in the electric vehicle company Rivian .