Online retail giant Amazon (AMZN) posted lower-than-expected third-quarter profit last week. The report weighed on share prices, pushing the stock down 6% in after-hours trade. Shares have since seen a slight recovery, but Amazon is still down 4% overall. Here are four takeaways from the report that may explain the continued sell-off.
1. Costs Will Continue to Weigh on Results
Management stated that it will continue to invest heavily going into the fourth quarter, which means costs will continue to weigh on the company’s results.
Amazon’s operating income guidance for the fourth quarter is between $0 and $1.25. The range is significantly lower than the $2.2 billion income seen in the final quarter of 2015.
Still, higher costs are representative of valuable investments. Management noted higher costs in two key areas: signing content deals and producing original content, and opening new warehouses for the holiday season.
2. EPS Missed Estimates
Amazon posted earnings per share of $0.52, which failed meet to analysts’ estimates of $0.78 per share.
While EPS failed to meet expectations, earnings are up over 200% compared to the same quarter last year when Amazon posted $0.17 EPS.
3. Cash Flow and Sales Are Up
Operating cash flow has increased significantly over the last 12 months, soaring 49%. Free cash flow has increased 59% over this same period.
Revenue jumped 29% year-over-year.
4. Sales Growth is Expected to Continue
Amazon had set new profit records over the last three quarters, but that streak ended with the most recent quarter. Earnings were the lowest out of the last three quarters.
With that said, the fourth quarter is looking bright for the company, and sales growth is expected to continue.
Amazon’s management projected solid growth for the holiday season, with guidance of a 17%-27% year-over-year rise in revenue for the fourth quarter.
