Amazon had the most profitable quarter in its history. Even so, it lost more than 5% in two days
Amazon shares fell 4.3% on Thursday, before the results. After they were released, the stock dropped another 7% in premarket trading to $226. On Friday, it erased most of the loss and closed at $240.35 (-1.4%). Even so, that’s roughly -5.6% since Wednesday and more than $150 billion in market value.
What disappointed?
Revenue of $201.9 billion (+12%) and earnings per share of $1.89 both came in below estimates. But the year-over-year decline in EPS is mainly an accounting issue: last year’s figure included $9.5 billion from the revaluation of Anthropic. Revenue was also dragged down by Prime Day shifting to the second quarter; without that, it would have grown about 4 points faster.
The real problem is cash. Free cash flow over the past 12 months is -$42.4 billion, almost double the 2022 record. In the quarter alone, $77.3 billion went to data centers and chips. The online store was also weaker, and the midpoint of the holiday outlook ($240-247 billion) is below consensus.
But what was strong?
AWS grew 39%, its fastest pace in five years. The 13.9% operating margin is a record, and the cloud backlog stands at $578 billion. But the market was expecting as much as 42%. When you spend $220 billion a year, “good” isn’t enough.
But why did Amazon’s results affect the entire market?
$AMZN’s results came at a bad time. The day before, $GOOG disappointed too, with negative cash flow, and on Friday $INTC plunged 29%. The Nasdaq lost 2.8%, its biggest drop since June, while the S&P 500 fell 1.3%. The Nasdaq is down more than 5% for October. Money flowed into $WMT and $COST.
Tariffs, gas and consumers
Amazon cites tariffs only as a general risk and hasn’t quantified the impact. But Jassy admitted back in January that sellers are passing them on through prices. For retail, gas is more immediately significant now, up 34% year over year, while consumer sentiment is at 46. Those who spend more at the pump have less to spend shopping online. More expensive fuel also raises logistics costs, while pricier memory drives up capex.
How do I personally read the results?
I don’t see a broken thesis here. Operationally, this is the best quarter in the company’s history. But I’m watching the balance between AWS growth and capex. Capex grew 120% year over year, while AWS grew 39%. As long as the backlog keeps growing, it makes sense. But the margin for error has narrowed, and the market wants to see returns.