US Stocks

Amazon: Missing estimates but potential still shines

It’s the season for quarterly earnings misses and surprises. However, there was a very shocking one that caught many investors off-guard.

Amazon (NASDAQ: AMZN), the global e-commerce and cloud-based service company has made some of its investors begin to wonder if they are having trouble meeting Wall Street estimates.

So what does this mean for Amazon currently and in the future? Let’s find out.

Quarterly Results

Amazon’s stock was sent sliding close to 5% after the news of a miss on third-quarter expectations of both revenue and earnings.

Revenue was expected to be $111.6 billion but ended up falling slightly short to $110.81 billion.

Earnings per share is a different story though, dramatically decreasing to only $6.12 per share when analysts expected $8.92 per share.

Needless to say, this took investors by surprise. This happened for a variety of reasons. For one, many consumers are beginning to go to in-person retail stores once again. However, the largest factor for these misses in estimates had largely to do with rising costs associated with supply chain issues.

Because of these shortages and added costs, Amazon stated that the fourth quarter will face even greater challenges, narrowing profitability even more because of the holiday season, which could lead to a significant moral decrease from its current shareholders.

However, this recent news and the sequence of events that follow throughout the rest of the year are very short-term focussed. Amazon will likely pick up profitability once again as supply chain pressure eases.

Amazon Web Services

Despite the misses in both earnings and revenues overall, there was a beacon of growth to be seen in the quarterly results.

Amazon Web Services (AWS), the cloud-based service that provides corporations and organizations tools to optimize their business models, workflows, and more, saw massive partnerships and growth in the third quarter which resulted in a rise of 39% year-over-year in revenues totalling $16.11 billion.

This shows the necessity in every business model to have various streams of revenue. Without AWS, Amazon’s quarterly results would have shaken investors. Luckily, AWS doesn’t rely on many physical components as retail, which allowed for excelling growth throughout the quarter, which will likely continue for the quarters coming up.

It’s become clear that AWS is now a massive component of Amazon, and it’ll likely stay that way for a long time, potentially someday surpassing retail sales as a whole as cloud-based services are exponentially in demand.

Final Thoughts

Although Amazon did miss estimates on revenue and earnings per share, and earnings are predicted to decrease even further heading into the holiday season, AWS and other Amazon services will likely keep shareholders at bay for now.

Over the long term, Amazon is building various business segments that will allow for consistent growth regardless of the market conditions as we are beginning to see today. This includes AWS, streaming, retail, and much more.

Overall, I’m optimistic that Amazon’s ability to scale its business will continue for many years to come, which may lead to happy shareholders and possibly great returns.

Not Investment Advice Indie Investor is for general information use only. It must not be relied upon by readers when making (or not making) their investment decisions. If in doubt you should seek advice from a professional financial adviser.

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