Wall Street braces cooling online shopping after pandemic surge

Amazon (AMZN) is set to report third-quarter results after market close on Thursday, with investors

Amazon (AMZN) is set to report third-quarter results after market close on Thursday, with investors bracing for a growth slowdown after the pandemic stoked a surge in online shopping last year and earlier in 2021.

Here are the main metrics expected from Amazon’s report, according to consensus estimates compiled by Bloomberg:

  • Revenue: $111.81 billion expected, $96.15 billion Y/Y

  • Adjusted earnings per share: $13.24 expected, $15.90 $ Y/Y

Amazon’s stock has underperformed the market since its latest earnings report in July, when the company offered a forecast for third-quarter sales that disappointed compared to Wall Street’s expectations. At the time, Amazon’s management attributed the deceleration to difficult comparisons to last year’s results, which had been boosted by pandemic-related lockdowns. 

In July, Amazon said it expected third-quarter sales would come in between $106 billion and $112 billion, with that growth rate of as much as 16% slowing markedly from the prior quarter’s 27%. Still, this would mark a fourth consecutive quarter of revenue topping $100 billion.

It also offered a wide guidance range for third-quarter operating income, suggesting this would come in between $2.5 billion and $6.0 billion, compared to $6.2 billion in the third quarter of 2020. And Amazon said it assumed it would book $1.0 billion in costs related to COVID-19 in the quarter. 

Shares of Amazon dropped by 5.8% from July 29 through Wednesday’s close, lagging compared to the S&P 500’s 3% gain during that period. 

Wall Street is also nervously awaiting the results to see how the company navigated rising input costs and supply chain challenges, especially heading into the key holiday season. 

The company ramped its hiring plans even further in the third quarter, expanding its sizable workforce and creating additional labor costs. Just last month, Amazon announced plans to bring on another 125,000 fulfillment and transportation employees at an average rate of $18 per hour, on top of another 40,000 corporate workers it announced it would be adding just weeks earlier. Overall, the company has added over 450,000 workers in the U.S. since the pandemic began. 

“Concerns across top line, bottom line, and broader macro have collectively driven cautious sentiment into year-end,” wrote JPMorgan analyst Doug Anmuth in a note last Thursday. “However, we believe there is still significant secular shift toward e-commerce ahead and Amazon has a very strong track record around investing into future growth opportunities.”

“Macro issues related to supply chain, port congestion, and inventory are well-documented and have intensified into the holiday season, driving concerns that delays could impact timing of AMZN receiving 1P/3P [first-party and third-party seller] inventory and certain items could remain out-of-stock,” he added. “Overall, we believe AMZN embedded some degree of disruption into the 3Q guide and we believe AMZN scaled inventory in anticipation of greater 2H demand.”

Amazon boxes are seen stacked for delivery in the Manhattan borough of New York City, January 29, 2016. REUTERS/Mike Segar/File Photo

Amazon’s results may get another boost from Amazon Web Services, or its flagship cloud computing platform. The high-margin business grew sales by 37% in the second quarter, with this rate accelerating compared to both the prior quarter and year ago period. Consensus analysts expect AWS to grow sales another 33% in the third quarter to reach $15.4 billion. 

Meanwhile, some analysts said Amazon’s advertising business will likely benefit from Apple’s recent iOS data privacy changes, which negatively impacted results and guidance at social media company Snap (SNAP) and exerted some pressure at Facebook (FB), Twitter (TWTR) and Alphabet’s (GOOGL) YouTube ad business during the quarter. Unlike these online media platforms, Amazon has the ability to continue tracking the behavior of its Prime subscribers on its site, given advertisers more ability to monitor their campaigns even if users opt out of ad tracking on Apple’s software platform, some analysts pointed out.

“Amazon should continue to benefit from Apple’s recent privacy changes as advertisers turn to a company that is able to track the behavior of over 200 million Prime customers, including which ads they saw or clicked or purchased from, regardless of whether or not the user chose to opt into being tracked by Apple,” wrote Wedbush analyst Ygal Arounian in a note. 

Amazon’s “other” business unit, which mostly includes advertising along with some other services, grew to $7.9 billion in the second quarter, representing a jump of 83%. 

This post will be updated with the results of Amazon’s Q3 earnings results after market close on Thursday. Check back for updates.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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