Amazon.com Inc. profit fell for the first time in more than two years in the third quarter, and the company expects another earnings decline in the holiday-shopping season, which sent shares down more than 8% in late trading Thursday.
Amazon AMZN, +1.06% reported third-quarter profit of $2.1 billion, or $4.23 a share, on sales of $69.98 billion after the market closed Thursday. Sales rose from $56.58 billion a year ago, but earnings declined from $5.75 a share, the first time Amazon earnings have shrunk year-over-year since June 2017. Analysts on average expected Amazon to report earnings of $4.59 a share on sales of $68.83 billion, according to FactSet.
Amazon had been on a run of record profits until last quarter, when increased spending on transitioning to one-day delivery for Prime customers and other initiatives began showing up in its results. The e-commerce giant reported profit topping $10 billion in 2018, more than triple its previous annual record, and had reported record quarterly profit totals for four consecutive quarters before breaking that streak with second-quarter results.
Amazon’s forecast for the holiday quarter came in short of estimates for both profit and sales, as the company predicted net revenue of $80 billion to $86.5 billion with operating income of $1.2 billion to $2.9 billion. Analysts on average were predicting fourth-quarter operating profit of $4.19 billion on sales of $87.39 billion, according to FactSet, after Amazon reported operating income of $3.79 billion on revenue of $72.38 billion in the holiday quarter a year ago.
Amazon shares increased 1.1% to $1,780.78 in the regular session Thursday, then plunged tward $1,620 a share in after-hours trading after results were announced. The stock has gained 18.6% in 2019, but declined more than 10% in the past three months, as the S&P 500 index SPX, +0.19% fell about 0.5%.
Amazon prepped investors and analysts for the spending increase and resulting profit decline, projecting an $800 million charge in the second quarter for the one-day delivery change. Amazon ended up spending more than that in the second quarter, however, and Chief Financial Officer Brian Olsavsky said in July that Amazon would spend even more in the third quarter.
“We are ramping up to make our 25th holiday season the best ever for Prime customers — with millions of products available for free one-day delivery,” Amazon Chief Executive Jeff Bezos said in Thursday’s earnings announcement. “Customers love the transition of Prime from two days to one day — they’ve already ordered billions of items with free one-day delivery this year. It’s a big investment, and it’s the right long-term decision for customers.”
Amazon Web Services, Amazon’s leading cloud-computing business, reported revenue of $9 billion and operating income of $2.26 billion, 71.6% of Amazon’s total operating profit.