AMZN Amazon.com Inc

By Dana Mattioli 

Amazon.com Inc. said its profit fell sharply in the third quarter, sending its share price down, as the company continued to spend heavily in its push to offer Prime customers one-day shipping.

The company's third-quarter profit fell 26% from a year ago to $2.1 billion and missed analysts' consensus estimate of $4.59 a share, according to FactSet. In the last quarter, the company ended its quarterly profit streak and missed analyst expectations.

Revenue rose 24% to $70 billion -- better than analysts' estimates -- compared with a 20% increase three months earlier. The third quarter included Prime Day, a July shopping event created to sign up new Prime subscriptions by offering steep sales for members.

Amazon's profit miss sent shares down more than 7% in after-hours trading Thursday. Before the late-afternoon report, the stock was up nearly 16% this year, giving the company a market value of around $881 billion.

Amazon's world-wide shipping costs jumped 46% to $9.6 billion from the previous year as the company processes higher shipping costs related to its one-day shipping program for Prime subscribers.

In the fourth quarter, the company expects to spend roughly double what it spent in the second quarter on one-day shipping, or $1.5 billion, to facilitate the program, said Chief Financial Officer Brian Olsavsky on a call with media Thursday.

In addition to getting product closer to customers by having inventory dispersed among its warehouses, Amazon saw a steep hiring increase for the quarter, with employment reaching 750,000 workers. Mr. Olsavsky said this jump was more pronounced this year because of the onset of one-day Prime shipping.

Amazon's third quarter typically is one when spending rises ahead of the all-important holiday season in the fourth quarter, which includes Black Friday, Cyber Monday and Christmas. For this year, spending is projected to be even higher as the company continues invest in providing one-day free shipping for Prime members. Last quarter, the company said it spent more than the estimated $800 million on building out next-day shipping, citing higher costs in shifting warehouses and in moving inventory closer to customers.

The company also signaled a weaker profit outlook for the final quarter of the year, which includes the holiday season. Amazon expects its operating income in the fourth quarter to fall to between $1.2 billion and $2.9 billion, down from $3.8 billion a year ago and below the $4.2 billion estimated by analysts.

Amazon Web Services, the company's cloud-computing operation and its main profit center, also showed signs of slowing growth. The unit delivered $9 billion in sales, rising 34.7% from a year earlier -- still rapid for a business of its size, but below the 37% clip of the previous quarter, which itself was slower than the 40%-or-more growth the unit typically posts.

Operating income of the cloud-computing business, which rents computing power to companies and the government, rose 8.9% to $2.3 billion.

The slowing growth at Amazon Web Services comes as Microsoft Corp., its chief rival in the cloud business, reported a record quarter for its cloud-services unit earlier in the week. Revenue for Microsoft's commercial-cloud operations -- which include Azure computing services, Office 365 tools and other cloud services -- increased 36% to a record $11.6 billion.

Amazon's advertising business registered $3.6 billion in sales, a 43.7% increase from the year-earlier period. The unit, which sells advertising space in the form of sponsored products in search and display ads, has become another cash cow for the company.

Amazon's international business, meanwhile, posted another operating loss for the quarter, and profit declined 37% in its North American unit, which includes the bulk of its e-commerce operations.

The physical stores segment, which includes Whole Foods, saw the steepest drop in sales over the last year.

Write to Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

October 24, 2019 17:40 ET (21:40 GMT)

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