They are a fickle lot on Wall Street, demanding companies outperform only to change the ground rules when they do, or punishing them for providing a realistic forecast for the rest of the financial year.
Facebook was a prime example this week, reporting surges in revenues and earnings for the June quarter from the Covid-depressed year ago period, and then warning of slowing growth in the next few quarters because the comparative base a year ago showed such big rises (and the same will apply in the June half of 2022).
Down went the shares – they lost 4% on Thursday for no reason – the company’s ad sales and overall revenues will continue growing, just not at the outrageously high rate demanded by Wall Street.
And then there’s Amazon – the shares fell more than 7% at one stage in after-hours trading on Thursday when a 27% jump on a year ago became a negative because the growth fell short of overly optimistic forecast from out of touch analysts. Yet Amazon’s earnings outperformed, but that wasn’t enough.
Amazon saw second quarter net sales leap 27% to $US113.08 billion and net profit jump 50% to $US7.8 billion from $US5.2 billion in the June quarter a year ago.
Sales fell short of analysts’ estimates $US115.2 billion. The analysts’ earnings forecasts though were well short of what Amazon reported.
On a per share basis, Amazon earned $US15.12 vs $US12.30 from the market – a miss analysts and others conveniently ignored.
While earnings are not such a big deal for tech analysts, the likes of Amazon, Apple, Facebook et al are now modern industrials (think Boeing or Walmart or a bank) but with high revenue growth and equally high earning growth.
They are in fact the modern industrial value giants. Apple for example, even pays a dividend and bought back shares in the June quarter – like any modern industrial stock does.
Sales growth of 27% was a significant slowdown from the second quarter of 2020, when the skyrocketed 41% from the June, 2019 quarter. That was because Americans were in lockdown and ordered online instead of shopping in person.
Now the US is free of lockdowns, although the Delta variant of Covid is making inroads in unvaccinated states, and in places with vaccinations have been heavy, such as Los Angeles.
No sign of any mass lockdowns, but mask use is being increasingly mandated as are demands for employees to be vaccinated or face regular testing if they refuse.
Like Facebook, Amazon warned of slowing growth rates in coming quarters because of the strong comparative quarters in late 2020 and early this year.
For the third quarter, Amazon said it expects to book sales between $US106 billion and $US112 billion, or growth of 10% to 16% compared to the same period last year. That’s well below consensus estimates of $US119.2 billion (which look out of touch). The third quarter is usually a weak one for Amazon in the run up to the final three months and the Thanksgiving – Christmas period
Amazon said its operating profit in the third quarter will be in the range of $US2.5 billion and $US6 billion, an unusually wide gap, but the same quarter in 2020 saw the company earn $US6.2 billion despite extra costs for things like coronavirus safety measures and extra staff numbers.
That was the third quarter in a row that Amazon’s sales have topped $US100 billion – it was only 18 months ago that the same analysts though that would not happen for a couple of years.
For the six months to June, revenue rose to $US221.6 billion from $US164.3 billion and net profit more than doubled to $US15.88 billion from $US7.77 billion.
Subscription services, which includes annual and monthly fees associated with Amazon Prime memberships, as well as digital video, audiobook, digital music, e-book, and other non-AWS subscription services, grew revenue by 32% to $US7.9 billion.
The company’s “other” segment, which primarily includes sales of advertising services, surged 83%, in line with strong digital advertising trends seen in this earnings round at Snap, Twitter, Google and others.
Amazon Web Services, the cloud business saw outperformance compared with analysts’ estimates
AWS saw its revenue jump 37% in the second quarter, faster than 32% growth in the previous quarter to $US14.81 billion topping analysts’ estimates of $US14.20 billion. AWS is a growth company (in the old-fashioned Wall Street sense of the phrase).
AWS has pre-tax operating profits in the latest quarter of $US4.193 billion, up 25%.
