Amazon.com sharply lowers 2008 outlook
The Web will not be spared from the slowdown in consumer spending that’s threatening the all-important holiday shopping season.
That much became clear Wednesday when Amazon.com Inc., the world’s largest online retailer, sharply lowered its 2008 revenue outlook as it anticipates a less than merry holiday season.
Amazon.com projected it would earn $6 billion to $7 billion during the fourth quarter, down from the $7.2 billion it had previously forecast. That’s bad news for investors: Last year the fourth quarter accounted for 43% of the Seattle retailer’s annual profit.
Shares plunged 14% in after-hours trading despite Amazon.com reporting a 48% jump in third-quarter profit, buoyed by the free shipping service that prompted customers to buy more. The company has added products and cut prices to lure more shoppers and take market share in the downturn.
Last week EBay Inc. predicted its first-ever quarterly sales decline and cut its annual earnings forecast. The two companies’ forecasts suggest that the deepening financial crisis will hit online retailers just as hard as their brick-and-mortar counterparts.
Even giant retailers such as Wal-Mart Stores Inc. have warned that consumers have tightened the purse strings amid a deepening global recession.
Should the recession last as long as two years, Amazon.com Chief Executive Jeff Bezos said, his company would continue to invest in the business but would do so cautiously.
“We think that is sensible in the context of this macro environment,” Bezos said.
Wall Street sees Amazon.com as a bellwether for the Internet sector. Most analysts had expected online retail growth to slow for the first time this holiday season. But few expected Amazon.com to offer such a wide range of guidance or to lower it so much, Sanford C. Bernstein analyst Jeffrey Lindsay said.
Amazon.com projected that 2008 sales might be more than $1 billion short of analysts’ estimates of $19.49 billion.
During a conference call with analysts, executives provided little further guidance.
The company is responding to weaker consumer spending and a strengthening U.S. dollar, which is eating into the value of foreign sales.
Chief Financial Officer Tom Szkutak said Amazon.com was being “appropriately conservative and prudent” given its “limited visibility.”
Amazon.com’s cautious and uncertain outlook made investors jittery because it signals a protracted economic downturn, Lindsay said.
“With guidance that wide, it added to uncertainty in the sector,” he said. “This might be setting the stage for the reset of Internet valuations and a rethink going into 2009.”
Amazon.com expects annual sales to be $18.46 billion to $19.46 billion, down from the July forecast of as much as $20.1 billion.
The company’s third-quarter net income rose 48% to $118 million, or 27 cents a share, from $80 million, or 19 cents, a year ago. Revenue grew 31% to $4.26 billion, the smallest gain in two years.
In regular trading, shares fell 24 cents to $49.99, but they plunged $7.01 to $42.98 after the close. The stock is down more than 57% from its 52-week high of $101.09.
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