Saturday, October 29, 2016

Amazon's Stock Falls on Slimmer Than Expected Profits; Media Sales Now Even with Apple

Publishers Lunch

Amazon and Google both reported third quarter sales after the close of the market on Thursday. Amazon was expected to exceed analysts' expectations (yes, that's as crazy as it sounds) but they only fulfilled that halfway: Indeed sales of $32.7 billion were about $130 million ahead of those estimates, rising 29 percent overall, but profits returned to disappointing, with net income of $252 million or 52 cents a share -- down from a quarter ago, and down from analysts' target of 85 cents a share.

Those profits were additionally disappointing when you consider that the company's profit engine -- the AWS web services group -- generated almost twice the operating income this year ($861 million) than it did last year ($428 million), but that wasn't enough. As a result, shares were sent straight down in after-hours trading and stayed down in the first hour of trading on Friday, declining about 4.5 percent. For the big fourth quarter, operating income is expected a range from nothing to $1.25 billion (yes, it's hard to believe that's considered an acceptable range), making it hard to do much better than the $1.1 billion they made in the fourth quarter a year ago.

North American media sales of $3.237 billion rose 9 percent, while international media sales of $2.491 billion gained 7 percent. At $5.728 billion, that leaves Amazon behind Apple's just-reported record "services" sales of $6.325 billion. As we
suggested earlier in the week, that means that for the first time, Amazon and Apple are basically dead-even with each other in their respective media-dominated reporting segments over the past four quarters.

Amazon has a $54 million lead on an operating basis ($23.852 billion to $23.799 billion) though Apple led overall once you include a one-time patent lawsuit settlement of $548 million. More significantly, Apple's "services" segment is growing about twice as quickly as Amazon's media sales, suggesting that the hardware maker will pull well ahead of the etailer in the coming year.

In separate Amazon news, the company exercised their right to
buy India publisher and distributor Westland outright from the Tata Group, for an undisclosed price. VP and country manager of Amazon India Amit Agarwal said, "Our acquisition of Westland continues our commitment to India -- enabling Amazon to bring Westland's highly talented authors and their books to even more customers in India and around the world." Amazon bought a 26 percent stake in the publisher early this year, with a right to acquire the entire company.

Separately, Google's sales
rose 20 percent to $22.45 billion. "Other revenues," which is where they report the Google Play store, rose 39 percent to $2.433 billion. The company said that segment's "growth was driven by Play and Cloud."

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