Amazon online store sales fall short of expectations

Tuna Amobi, CFRA Analyst, dissects Amazon's latest quarterly earnings.

Video transcript

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SEANA SMITH: Amazon earnings out just a few minutes ago, the first release under new CEO Andy Jassy. Now, it was a miss here on both their top and bottom lines for the third quarter. You're seeing that reflected in the after hours, with the stock off just around 4%. Also some worried about the guidance for the current quarter, that very important holiday quarter, for Amazon.

So let's bring in Tuna Amobi. He's a CFRA analyst. And Tuna, just give us your initial takes on this report and the reaction that we're seeing in the stock. Is it justified?

TUNA AMOBI: Yeah, I think my major concern with the numbers, really, the outlook for Q4, as you alluded to, granted that they are coming off very, very difficult comparisons to the last holiday season. But that being said, I think you can get a sense that there seems to be some impact from the reversal of some of the tailwinds that the company may have enjoyed.

That's not to say that the secular tailwinds are dissipating any time soon. Amazon Web Services, I think you can also tell that they're facing some intensifying competition. We saw the numbers from Microsoft and Google Cloud. But that being said, all in all, I think the company, I have to say, really emphasized-- it kind of reminded investors that its focus has always been on the long term.

So they're now back in that very heavy investment mode that we saw several years ago. And that's where you're seeing the disconnect between analysts' expectations and their reported numbers.

SEANA SMITH: Tuna, you mentioned AWS. And I want to dig into that a little bit because the results that we just got from Amazon and its Amazon Web Services cloud computing platform, their revenue in that division grew 39% to reach 16.1 billion. But like you said, competition has been heating up within that sector. How would you stack up AWS against its biggest competitors out there, Microsoft and Google, when it comes to the cloud business?

TUNA AMOBI: I think the company is actually holding its own. And I mean, it was kind of last year when it kind of looked like Microsoft was going to eat their lunch, and they were growing much faster. They're still growing very fast. But relatively speaking, I think Amazon has done a pretty good job to contain some of the concerns.

This is a market that has a very long tail. So we think the runway is quite long for all of the three major players in Amazon, Google, and Microsoft. In any given quarter, you're going to see the volatility and the share shifts. But all in all, I think AWS has done a pretty good job, especially internationally, where I think they've really you gotten a lot of foothold in some countries.

In the US, you could argue that these competitors are getting more ground in some respects. But all in all, I think this is a three-horse race, in my view.

SEANA SMITH: Tuna, the fourth quarter guidance coming in a bit short, Amazon saying that they expect sales to be 130 to 140 billion. The Street was looking for just around 141 billion. Some of this pointing to the global supply chain issues that we've been talking about time and time again. I guess, when you look out beyond this current quarter that we're in and into 2022, how big of a challenge do you see this being for Amazon?

TUNA AMOBI: I think you made a good point, because we were actually very wary of the potential impact of this supply chain coming into this holiday selling season. There's no doubt that it's going to be a major factor. And I think the potential impact in Q2 could actually continue into the first half.

But that being said, they are going to have the benefit of cycling through some of the less robust or less difficult comparisons, as they enter next year. So I think the e-commerce business is always going to have that secular underpinning of more people shopping online. And especially now that people are kind of working from home, that's a lot of people are working from home. That is going to be something, I think, that sustains the e-commerce business for quite some time.

But to your question, I think, as we kind of look further out, AWS is going to perhaps face some type of saturation. It's still some ways out. But our near-term expectation is that 2022 is going to show some moderation in growth across the board, as the company continues to cycle through these supply chain issues, which is going to be the major unknown here.

SEANA SMITH: And Tuna, your comments about the e-commerce growth, because it was up 3% over a year ago, coming in to 49.9. It missed the Street's expectations of just over 51 billion. I know you said that you were bullish on the e-commerce part of their business. But I guess, to what extent-- or is there still this significant secular shift towards e-commerce ahead?

TUNA AMOBI: That secular shift, we think, is still intact, although it was accelerated significantly by the pandemic. With that being said, there is no question that the law of large numbers is going to kick in as you kind of look at the e-commerce business several years out. Sooner than later, I think we can start to see some kind of plateauing.

And that's still not going to be anything to sneeze at when you look at the traditional retailers. No one is saying that they're going to stop bleeding anytime soon. So I think longer-term, secular trends still favor e-commerce. We still expect them to be growing multiples of the traditional retail. But the overall growth outlook could start to moderate.

SEANA SMITH: And Tuna, in your recent note, you said that one thing that you're going to be looking for is any update on Amazon's deal to buy MGM Studios. What do you think the odds are-- or do you think the odds are in their favor that they are going to get this deal approved?

TUNA AMOBI: Seana, it's kind of tough to handicap these things, as you can imagine. But all in all, I don't think there's any major changes out there that make us believe that this deal is in any serious jeopardy. We still think that ultimately, that deal will be cleared. It just remains to be seen what conditions might be attached.

But the competitive environment, as you know, in the streaming and entire video landscape has changed quite dramatically. I think the political and regulatory environment, I would argue, is a little more conducive than it was in the prior administration. So that being said, with all of the deals we're seeing now in consolidation, whether it's WarnerMedia and Discovery and others, all of these, I think, are things that will argue for very a rapidly shifting competitive landscape that will help to facilitate the approval.

SEANA SMITH: And Tuna, before we let you go, just the question that you want answered on the earnings call today?

TUNA AMOBI: The one question I think is really the impact of the supply chain in terms of how that may have factored into the guidance and what the company is doing to mitigate those. And any kind of sense will really help us to model out and put this Q4 guidance in context.

SEANA SMITH: Tuna Amobi, always great to speak with you, CFRA analyst. We really enjoy you giving us your perspective. Thanks so much.