July 16, 2024

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Amazon warned consumer spending was in “uncharted waters” as it issued revenue forecasts well below Wall Street expectations, sending its shares down 10 per cent on Friday and deepening the sense of gloom hanging over the tech sector.

The ecommerce and cloud computing group, which has become a modern day bellwether for the US economy, said it expected revenues to be between $140bn and $148bn in the fourth quarter, which includes the critical holiday selling season. That was as much as $15bn less than the $155bn analysts were expecting, according to S&P Capital IQ.

Amazon projected operating income in the fourth quarter would be between zero and $4bn, versus analysts’ estimates of $5bn.

Brian Olsavsky, Amazon’s chief financial officer, said rising inflation and energy prices had prompted consumers and businesses to reassess their purchasing power. “This is uncharted waters for a lot of consumers’ budgets,” he added.

It was the latest Big Tech group to disappoint investors this week, after Google owner Alphabet, Facebook parent Meta, and Microsoft spooked Wall Street by warning of slower growth and higher costs.

Amazon reported third-quarter revenues of $127.1bn, up 15 per cent versus last year but slightly worse than analysts’ expectations. Net income fell to $2.9bn from $3.2bn a year ago and included a $1.1bn boost in non-operating income from its stake in electric vehicle maker Rivian.

Chief executive Andy Jassy said the company was making progress on lowering its warehouse and logistics costs but warned “there is obviously a lot happening in the macroeconomic environment”.

He added: “We’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

Amazon’s cloud business, which for much of the year has helped to offset weakness in retail, also suffered from lower than expected revenue growth and weaker margins in the third quarter.

Cloud revenue rose 28 per cent year on year to $20.54bn, marking the first time since the end of 2020 that the unit grew less than 30 per cent.

The division had been hit by businesses trying to cut variable costs, Olsavsky said. “We started to see a lot of customers cutting their bills, which we’re glad to help with,” he said. “It’s impacting the short-term growth rates.”

After declining in the prior two quarters, revenue at Amazon’s online store returned to growth with a 7 per cent rise in sales to $53.49bn, though the company cautioned consumers may restrain spending for the remainder of this year.

“Consumers have burned through their savings,” said Guru Hariharan, chief executive of CommerceIQ, an ecommerce management platform.

Amazon has slowed hiring in some units and in recent weeks moved to close underperforming or experimental projects, such as its delivery robot concept, Scout.

Olsavsky said the company had become “very careful” in its corporate hiring. “We are preparing for what could be a slower growth period.”

However, spending has continued to rise in its areas including the acquisitions of sports and entertainment content for its Prime Video service and the expansion of its healthcare operation.

Olsavsky said 25mn people had watched Prime Video’s Lord of the Rings spin-off, Rings Of Power the first day it was released. The series cost a reported $1bn to produce.

A disappointing fourth quarter would mark the end of Jassy’s first full year in charge. He took over from founder Jeff Bezos in July 2021, when Amazon’s challenges started to mount.

“The probabilities in this economy tell you to batten down the hatches,” Bezos said on Twitter earlier this month.

Additional reporting by Ian Johnston in London

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