Amazon Shares Drop After Company Gives This Warning for 2019

Despite beating on earnings in its fourth quarter financial report, Amazon shares took a nose dive after the e-commerce giant warned that it would be increasing investments.

Earnings for the holiday quarter were $6.04 a share, beating the $5.68 a share that analysts according to Refinitiv were expecting. Revenue at $72.4 billion was also ahead of the $71.9 billion expected according to Refinitiv. Amazon Web Services brought in $7.43 billion compared to just the $7.3 billion that was expected.

The stock saw a drop of over 5% in after-hours trading after Wall Street learned about the company’s weak guidance.

Amazon CFO Brian Olsavsky noted during the earnings call that spending is now likely to pick up in 2019. “I would expect investments to increase relative to 2018,” Olsavsky said.

Olsavksy also said, “We feel good about the growth in the quarter. We think it was a Q4, in particular, was a great quarter for customers — there’s a lot of strength in the retail part of the businesses. The teams here had done a great job planning, preparing, and then executing on the quarter. AWS maintained a very strong growth rate and continued to deliver for customers and we had a great reinvent conference in the quarter. We feel good about the growth in the quarter and also the total revenue income.”

The company’s annual revenue hit $232.9 billion last year, the first time Amazon has seen annual revenue hit over $200 billion.

Credit Suisse has an “outperform” rating on the stock and has said, “As we look toward 2019 and the 4Q18 earnings result, we expect the following items to be of primary focus: 1) potential unit volume and revenue growth stabilization in 4Q18 due to greater free shipping subsidies through the Holidays, 2) as well as for 2019 as Amazon exits a period of tougher comparisons due to a decrease in the free shipping minimum, 3) lower seller referral and higher FBA fees, 4) higher USPS fees, 5) minimum wage hikes, 5) more moderate 1P/3P mix shift… Adding up these factors, we believe Amazon will display throughout 2019 better-than-expected unit and revenue growth offset by a slower pace of profit dollar growth given the incremental expense items… Although this is different versus the outsized operating profit beats the company has displayed 1Q18-3Q18, we expect investors to receive well what should be a more moderate deceleration path… We maintain our Outperform rating on AMZN shares, which is predicated on the following longer-term factors 1) e-commerce segment operating margin expansion as Amazon grows into its larger infrastructure, 2) optionality for faster-than-expected free cash flow growth vis-à-vis its advertising segment, and 3) upward bias to AWS revenue forecasts and likely more moderate deceleration path as suggested by ongoing capital intensity in the business..”

JPMorgan also has an “overweight” rating and has said, “We expect solid 4Q revenue of $72.1B (+20.1% FXN Y/Y), and while upside may be limited given well-discussed EU retail softness, AMZN should benefit from its US/UK free holiday shipping offer and potential share gains in toys… 2) We expect upside to our 4Q GAAP operating income estimate of $3.6B, with investor expectations likely $4B+… 3) We believe AMZN will guide the high end to revenue reacceleration in 1Q, though we recognize there are multiple timing/comp dynamics and accounting changes that combined could be a modest headwind to AMZN’s typical reacceleration… 4) We believe 1Q profit expectations are reasonable, with our $3.25B estimate modestly above $3.0B consensus…”

Disclaimer: We have no position in Amazon.com, Inc. (NASDAQ: AMZN) and have not been compensated for this article.