Why Amazon.com Shares Fell as Much as 10.1% Today – The Motley Fool

What happened

Shares of Amazon.com (NASDAQ: AMZN) fell as much as 10.1% lower on Friday, following the release of third-quarter earnings on Thursday evening. There was nothing terribly wrong with the third-quarter results themselves but many investors in the future. As of 2 p.m. EDT, Amazon's shares had recovered somewhat to 6.8% drop.

So what

In the third quarter, Amazon's earnings rose 11-fold to $ 5.75 per diluted share. Revenue grew 30% year over year, stopping at $ 56.6 billion. Your average analyst had been looking for $ 3.14 per share on the $ 57.1 billion market share. So Amazon crushed Wall Street's earnings targets fell short of the consensus revenue projection. It is pointed at $ 55.8 billion on the top line. From that perspective, the result was a positive surprise.

Source image: Amazon.com.

However, Amazon's forward-looking income guidance is roughly 15% year-over-year growth in the fourth quarter. That would be one of the slowest sales growth Amazon has delivered in the last decade, and that's why many investors are reaching for their "sell" buttons today.

Now what

In the earnings call, CFO Brian Olsavsky explained the rationale behind the modest revenue guidance.

• This will be the first of the apples-to-apples comparison since 2017. All that's going to happen in the fall of 2017. That's getting stronger year-over-year revenue comparisons higher in 2018 and that is coming to an abrupt end here.

• The way Amazon accounts for its Premium program has changed. In recent years, the revenue recognition for this customer loyalty program has been used by those who have used it in any given quarter, which is of course the largest volume in the world. These days, it's a straight-line amortization approach that spreads the prime subscription payments evenly over the entire year. The effect of this is small but significant at $ 300 million.
• The holiday season is always a big deal for Amazon, not to mention its retailer peers and rivals. None of them have a perfect crystal ball and it's a guessing game. This time, Olsavsky decided to take a look at the potential holiday results. He underestimated third-quarter sales and could be wrong in the fourth quarter – in one direction.

  The 15% growth target is still not terribly impressive, but it is not the end of the world. Amazon investors have still enjoyed a 52% gain in 2018 and 83% over the last 52 weeks, so perhaps a small correction was in order.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool 's Board of Directors. Anders Bylund owns shares of Amazon. The Motley Fool's own Amazon shares. The Motley Fool has a disclosure policy.