Daily Management Review

Growth Worries Triggered By Weak Amazon, Alphabet Q3 Results


Growth Worries Triggered By Weak Amazon, Alphabet Q3 Results
Concerns about the favourite tech stocks of Wall Street are beginning to face strong competition were fanned after shares of Amazon.com Inc recorded its largest fall in four years on Friday following the retailer’s revenue for the holiday season missed targets.
The third quarter was the second consecutive quarter that Amazon missed had its target in terms of sales and after similar disappointing results were reported by Google-owner Alphabet, the tech s\stocks went into a spiral fall and sent shock waves through the stock markets.
No downgrades for the company stocks were however made by Wall Street analysts who seem to be very confident of the long term success of the stocks. But there were some analysts who believe that saw signals of tougher competition being faced by both the tech companies primarily from other tech peers and the retail companies that Amazon had dominated for years now.
More than $80 billion from Amazon’s market value was knocked off with a fall of as much as 9 per cent in its shares and leg\ft the largest e-commerce firm of the world trailing Microsoft Corp and Apple Inc in terms of aggregate market value.
D.A. Davidson & Co analyst Thomas Forte said that the e-retailer that have over the years acquired smaller retailers such as Borders, Sears and Toys ‘R’ Us, is not faced with tough challenges from other multinationals retailing companies who are creating a very strong online presence through significant investments. 
“Google, Microsoft, and Walmart ... are more difficult to kill,” he said.
There was a drop of 2 per cent in the shares of Alphabet after its reported lower than targeted sales for the third quarter after the firm had easily beaten market estimates since the last eight quarters.
The primary reason for the drop in sale revenues for Amazon was the firm’s international business which typically accounted for about 27.5 per cent of the total sales. The growth rate in its international business dropped by nearly 50 per cent to 13.4 percent compared to the previous quarter.
“We don’t see any real structural issue with Amazon but nearly every line in the business is decelerating a tad and we typically see another deceleration in retail in 4Q, hence are struggling to identify a catalyst,” Barclays analyst Ross Sandler said.
Two possible reasons were pointed out for the weaker than Wall Street anticipated sale revenues for the holiday shopping quarter by Wolfe Research analyst Scott Mushkin.
“They are worried about the macro. The second thing is they’re worried about competition,” he said. He also noted that there are signals of other major retailers are implementing specific strategies to compete with Amazon during the holiday sale season as well as the slowing of the economy in general.
According to Refinitiv data, while the Wall Street had estimated that the holiday quarter leading up to Christmas for Amazon would $73.9 billion, Amazon’s own target for the season was reported to be as much as $72.5 billion with a growth rate of anything between 10 per cent and 20 per cent.
Several analysts believe that any outright dip in profit seems highly unlikely and called the company’s outlook conservative.
“Overall, Amazon’s growth trajectory remains solid, including advertising, grocery, pharmacy, and specialty retail, as well as Amazon Business ($10 billion in sales in eight countries) and Amazon Web Services,” Telsey Advisory Group analysts said.