Earlier this month, Amazons billionaire founder Jeff Bezos warned that its time to batten down the hatches and prepare for a potential recession.
This week, we got a preview of what he was talking about.
Amazon turned in dismal earnings after the market closed on Thursday, leading the stock to crater as much as 11.5% on Friday.
The e-commerce giant fell short of Wall Streets expectations, posting $127.1 billion in revenue compared to analyst estimates for $127.6 billion, and $2.5 billion in operating income compared to an expected $3.1 billion, according to data from Bank of America.
But the worst part of the earnings report was undoubtedly Amazons outlook.
Management said they expect fourth-quarter revenue of between $140 billion and $148 billion, representing year-over-year growth of just 2% to 8%. For comparison, in the fourth quarter of last year, the company managed 10% revenue growth.
The results were so bad that Bank of America analysts, led by Justin Post, wrote in a Friday research note that Amazons misfire this quarter illustrates that the recession may be here already.
Of course, that may make sense to the majority of Americans. As polls show that most consumers believe theyre already coping with a recession as inflation eats away at their savingseven if economists disagree.
Whether the U.S. is currently in a recession or not may depend on who you ask. But what is clear is that most economists and business leaders believe a downturn is on the wayand earnings from bellwether firms like Amazon, which is on the front lines of retail, arent exactly filling analysts with confidence either.
After months of consistent recession predictions from Wall Street titans and billionaire investors, some 98% of CEOs and more than half of economists believe a recession will hit within the next 12 to 18 months.
Amazons big miss
What caused Amazons less-than-stellar third quarter earnings?
Bank of Americas analysts argued that the poor results were because of the impact of the strong dollar, rising energy costs, and a weakening consumer.
They noted that enterprise customers in Amazons cloud business are looking to reduce costs and consumers are pulling back on their e-commerce spending.
When asked about the e-commerce business on the third quarter earnings call on Thursday with analysts, Amazon CFO Brian Olsavsky said that sales in Europe are slowing much faster than North America, but admitted that even the U.S. has started to slow a bit.
And in the cloud business, which turned in 27% revenue growth in the third quarter compared to an expected 30%, Olsavsky said that some customers are cutting their budgets and trying to save money in the short run.
Post and his team lowered their price target for shares of Amazon to $137 from $157 after the call.
We had seen Amazon as one of the few potential acceleration stories, they wrote. But with the weakening consumer in the U.S. and Europe, growth will decelerate.
However, BofA didnt abandon their long-term bullish view entirely, reiterating their buy rating for the e-commerce leader.
We think Amazon is well positioned to capitalize on the global growth of eCommerce and other secular trends such as cloud computing, online advertising and connected devices, Post wrote when discussing his reasons for remaining bullish.
CFRA Research, an independent investment research firm, also maintained its buy rating on Amazon, but reduced its price target by $18 to $152 per share following the latest earnings.
Senior equity analyst Arun Sundaram said that high consumer inflation and weak sentiment are impacting e-commerce demand, and there is a clear slowdown in the cloud business. But he, too, remains bullish on Amazons long-term prospects.
We dont believe any of these issues will be long term or structural in nature, Sundaram wrote in a Friday research note. In fact, we still see AMZNs profitability/margins improving in 2023, particularly as recent belt-tightening actions bear fruit and AMZN grows into its existing (and overbuilt) supply chain network.
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