Amazon.com Inc.’s (AMZN) shares dropped after reporting second-quarter earnings that fell short of Wall Street expectations.
On Thursday, the e-commerce giant reported second-quarter earnings per share of 40 cents, compared to $1.78 in the same period last year. This is also way below Wall Street’s expected earnings per share of $1.42, according to Bloomberg. The decline by 71.6 percent is said to be Amazon’s biggest since the second quarter of 2014, when the company reported a loss that was 72.3 percent bigger than expected.
The company’s stock fell $25.96 or 2.5 percent, closing at $1,020.04. According to MarketWatch, the decline just wiped out about $12.5 billion in the company’s market capitalization, with 480.38 million outstanding shares as of July 18.
The stock had risen to as much as 2.9 percent to a record intraday high of $1,083.31 on Thursday, exceeding Microsoft Corp (MSFT). For a moment, Amazon founder and CEO Jeff Bezos had surpassed Microsoft’s Bill Gates as the world’s richest man. However, the stock changed course and lost $63.27 or 5.8 percent, putting Bezos back on the number two spot, with a difference of about $3.0 billion second to Bill Gates, as well as $3.5 billion ahead of Zara’s Amancio Ortega, Forbes reports.
Shares also dropped Friday, which is said to be the smallest decline since it dropped 1.0 percent in July 2010 just after reporting second-quarter earnings.
Amazon reported a net income of $197 million on revenues of $38 billion, topping analysts’ expectations of $37.2 billion. Revenues were up from $30.4 billion in last year’s second quarter.
The company’s services business segment, particularly the Amazon Web Services (AWS) cloud-computing business, saw the most improvement. AWS’ revenue increased 42 percent to $4.1 billion, and contributed a total of $916 million in operating profit for the second quarter, increasing 28 percent year over year. Overall service revenues of the company grew 42 percent to $13.2 billion, with a total revenue growth of 25 percent year-over-year.
However, increasing expenses affected the company’s bottom line. During the second quarter, Amazon saw a rise in its total operating expenses, totaling $37.3 billion or up to 28 percent year-over-year. The company’s spending on technology and content rose 43 percent to $5.5 billion from last year. Marketing costs also jumped 44 percent to $2.2 billion from last year’s cost, and fulfillment costs grew 33 percent to $5.2 million. Overall, Amazon’s operating income for the quarter was $628 million, which is a steep decline of 51 percent from last year’s second quarter.
Amazon Chief Financial Officer Brian Olavsky said during a call with analysts that the company will increase its spending on video content in the third quarter of the year. He added that the company has been hiring software engineers and sales representatives for AWS, as well as spending on new warehouses and investing in promotions and further developments for the Echo smart speakers.
“Our teams remain heads-down and focused on customers,” Bezos said in the earnings announcement.
Analysts, however, remain optimistic about Amazon despite its weak second-quarter earnings. “We continue to believe that we are in the early stages of the shift of compute to the cloud and the transition of traditional retail online and that the market is underestimating the long-term financial impact of both to Amazon,” Heath Terry, analyst at Goldman Sachs, wrote in a note to investors. “As Amazon continues to generate high cash returns on cash invested despite the growing scale of its investments, we believe growth acceleration like that we saw in 2Q is likely to continue.”
Several analysts noted that the company’s growing investment spending would pay dividends in years to come, despite lower short-term earnings, CNBC reports.
Amazon is expecting a revenue of between $39.25 billon and $41.75 billion for the third quarter.