Amazon Tumbles: Misses Revenues, AWS Disappoints, Guides Lower

Jeff Bezos magic may be running out, because one quarter after the stock plunged when the company missed earnings (with revenues in line) and guiding lower, moments ago AMZN did a twofer, and despite beating the bottom line, it posted a big miss on the top line. As a result, the reason why Amazon is tumbling some 4% after hours is because despite reporting Q4 EPS of $1.54, on expectations of $1.40, or a 55% increase in profit, is that Q4 revenue of $43.7 billion in its strongest quarter missed expectations of $44.9 billion, if 22.4% higher than a year ago.

Amazon's operating income of $1.26 billion was just above the high end of its guidance of $1.25, and beat Wall Street estimates of $1.13 billion. Also troubling: Amazon's "holy grail", AWS, reported sales growth of 47%, however, it was not enough and led to $3.54 billon in high margin sales, below the $3.61bn in consensus estimates, suggesting that the cloud wrs are finally starting to impact Jeff Bezos too.

The guidance was also troubling, with the company now expecting Q1 operating income between $250 and $900 million, below the street's expectation of $1.3 billion, on revenue of $33.3 to $35.8 billion, below the street's consensus of $36 billion.

with the company now expecting Q4 operating income between $0 and $1.25 billion, below the street's expectation of $1.7 billion, on revenue of $42 to $45.5 billion, roughly in line with consensus of $44.6 billion.

The full guidance:

  • Net sales are expected to be between $33.25 billion and $35.75 billion, or to grow between 14% and 23% compared with first quarter 2016. This guidance anticipates an unfavorable impact of approximately $730 million or 250 basis points from foreign exchange rates.
  • Operating income is expected to be between $250 million and $900 million, compared with $1.1 billion in first quarter 2016.

Digging into the number we find that while the all important AWS generated net sales of $3.54 billion, below the $3.61 billion expected by the street, with growth slowing again, printing at 47% in Q4, down from 58% Y/Y last quarter. In Q4, AWS generated $1.1 bilion in profit, suggesting a 31.3% margin, below the 31.6% last quarter. Even so, AWS' profit of $1.1 billion was far more than the rest of the entire business combined generated.

Jeff Bezos was as usual optimistic:

“Our Prime team’s customer obsession kept them busy in 2016,” said Jeff Bezos, Amazon founder and CEO. “Prime members can now choose from over 50 million items with free two-day shipping — up 73% since 2015. Prime Video is now available in more than 200 countries and territories. Prime Now added 18 new cities, which means millions more members now get one and two hour delivery. New benefits were also added to the list, like Prime Reading, Audible Channels for Prime, Twitch Prime and more. And customers noticed — tens of millions of new paid members joined the program in just this past year.”

Amazon also announced that it will create more than 100,000 new, full-time jobs in the U.S. over the next 18 months, and will include positions across the country for all types of experience, education, and skill levels.

Despite the disappointing revenue, cash flow hit a record $9.7 billion in Q3.

Additionally, after dipping in Q3, AMZN's operating margin rebounded from 1.8 to 2.9%.

Also notable, as of Dec. 31, Amazon employed some 341,400 mostly part-time workers.

The stock is down 4% after hours.