Amazon misses on earnings, stock down 5%

SAN FRANCISCO — Amazon posted a big miss on earnings Thursday but the company's revenue was close to what had been predicted. The results, coming off of a profitable second quarter, surprised investors and sent the stock tumbling 5% in after-hour trading.

The Seattle-based company reported earnings per share of 52 cents, versus an expected 82 cents as polled by S&P Global Market Intelligence.

Revenue was on target with predictions, coming in at $32.7 billion, versus an expected $32.654 billion.That compares with 17 cents in the year-earlier period and revenue of $25.36 billion, representing a 29% increase. Amazon’s third-quarter guidance was between $31 billion and $33.5 billion.

For the all-important fourth quarter and its holiday sales season, Amazon gave guidance of $42 billion and $45.5 billion, which would be between 17% and 27% growth compared with the fourth quarter of 2015.

Overall, Amazon shares are up 21% for the year, outperforming S&P (+6%) and Nasdaq (+9%). Amazon has risen 70% since February.

The last time Amazon missed earnings expectations was for the fourth quarter of 2015. The online retailer and cloud services company made $1 a share, less than the $1.58 per share expected by analysts.

As in past quarters, Amazon's cloud computing division, AWS, continued to be a profit driver, with revenue of $3.23 billion, up 55% from $2.08 billion in the same quarter a year ago.

According to Synergy Research Group AWS has 31% of the cloud market, with Microsoft’s Azure running far behind at 9% and Google at 4%.

Amazon Web Services' revenue grew 58% year-over-year, accounting for 9.5% of the company’s total revenue. Its operating income was $718 million, larger than Amazon's North American retail profit of $702 million.

“Looking ahead, Amazon's early sales estimates for the holiday quarter are calling for revenue growth of 25% over a year ago and the company has responded with plans to hire 120,000 seasonal workers (up 20% from last year) at a time when many bricks-and-mortar retailers are curbing their spending and hiring," said Motley Fool analyst Jason Moser.

Moser expects continued heavy investment in Prime, AWS and shipping and logistics,

Prime membership continues to be an engine of profitable growth, according to Chicago-based Consumer Intelligence Research Partners. Amazon itself does not release Prime membership numbers, but CIRP estimates that there are now 65 million U.S. members, meaning 52% of Amazon customers are Prime members.

That's up from an estimated 47 million U.S. Prime members at the end of the September 2015 quarter, an increase of 38% in one year.

Prime members are very lucrative for the company, spending on average about $1,200 per year, compared to about $600 per year for non-member customers.