Amazon stock drops sharply during earnings call after company warns of increased investments

Key Points
  • Amazon reported an earnings beat across the board, but first-quarter revenue guidance fell short of expectations.
  • It reported earnings of $6.04 per share, beating street estimates of $5.68 per share, according to Refinitiv.
  • Amazon stock dropped more than 5 percent in after hours after the company warned of increased investments in 2019.
Amazon beat on earnings and revenues—here’s what five experts are saying about the stock now
Amazon beat on earnings and revenues—here’s what five experts are saying about the stock now

Amazon's fourth-quarter results beat estimates, but weak guidance and general concerns about slowing growth and heavier investments in 2019 dragged the stock down in after hours trading.

Here are the most important numbers:

  • EPS: $6.04 vs. $5.68 estimated, according to Refinitiv
  • Revenue: $72.4 billion vs. $71.9 billion estimated, according to Refinitiv
  • AWS: $7.43 billion vs. $7.3 billion estimated, according to Refinitiv

Amazon shares dropped more than 5 percent in extended trading after the company warned of increased spending this year, following a relatively slow investment period in 2018. Amazon CFO Brian Olsavsky noted during the call with analysts that the company had significantly scaled back investments last year, across hiring and capital expenditures — and that spending is now likely to pick up.

"I would expect investments to increase relative to 2018," Olsavsky said.

The better-than-expected fourth-quarter results, backed by strong holiday sales, comes as investors fret about decelerating growth following two straight quarters of disappointing revenue. Sales climbed 19.7 percent in the latest quarter, which was faster than the 18.8 percent expected, but still the slowest since the first quarter of 2015.

This was the first time Amazon provided a year-over-year number on Whole Foods, a slower growing business. That likely contributed to the pullback in North American expansion, with the growth rate dropping to 18 percent from 42 percent in the year-ago period. Revenue at whole Foods increased about 6 percent from a year earlier.

Important questions around India

International sales growth also slowed to 15 percent compared to the previous year's 29 percent growth rate. India has been a notable challenge for Amazon, and the company wasn't able to provide much clarity about what to expect from here. Amazon has been on a hiring spree in India, but a new law will soon kick in that prevents foreign online retailers from selling products through affiliated companies.

"There is much uncertainty as to what the impact of the government rule change is going to have on the e-commerce sector there," Olsavsky said on the call. "Our main issue and our main concern is trying to minimize the impact to our customers and sellers in India."

Those concerns may have contributed to Amazon's disappointing first-quarter guidance. The company said that it expects revenue to come in between $56 billion and $60 billion, slightly below the $60.8 billion consensus estimated by FactSet.

AWS, meanwhile, continued to see strong results, maintaining its 45 percent growth rate from last year. Amazon's "Other" segment, mostly comprised of its advertising business, jumped 95 percent to $3.4 billion in revenue.

The growth of AWS helped produce record profits for the third consecutive quarter. Amazon generated $3 billion in net income, up 66 percent from last year. In addition to cloud, Amazon is getting a profit boost from advertising and the third-party marketplace, where margins are bigger but sales are smaller. Amazon is historically known for running on thin margins because it reinvests most of its profits back into the company.

Amazon shares seesaw after beating earnings estimates
Amazon shares seesaw after beating earnings estimates

Amazon finished the year with $232.9 billion in annual revenue, passing the $200 billion milestone for the first time.

CEO Jeff Bezos highlighted the success of the Alexa voice-assistant in the earnings release.

"Alexa was very busy during her holiday season," Bezos said in a statement. "Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year."

Amazon stock is up 18 percent over the past year. Its market cap, more than $840 billion as of Thursday afternoon, is the largest of any publicly traded company in the world.