Often considered a bellwether stock for sentiment towards technology shares globally the near 25% fall in the value of Amazon shares over the past month is a worrying sign for technology investors in Australia and globally.
Last Friday morning in Australia, Amazon reported its financial results for the quarter ending September 30, 2018. The results showed total third-quarter sales up 29% to US$56.6 billion, which translated to an operating profit of $3.7 billion, compared to just US$347 in the prior corresponding quarter.
Over the last year, Amazon has now produced $26.6 billion in operating cash profit, with free cash flow of US$15.4 billion, compared to free cash flow of $8 billion for the prior corresponding 12 month period.
This is impressive growth but it apparently “disappointed” the Wall Street professionals, with the quarterly revenue total apparently missing analysts’ estimates.
What’s more is that the online giant’s guidance for the next quarter has really let down the market.
The group is forecasting total sales between US$66.5 billion to US$72.5 billion (this includes the busy Xmas period) and operating profit between US$2.1 billion and US$3.6 billion, which is lower than the most recent quarter.
The guidance range is quite wide however and Amazon’s results can be lumpy due to the thin margins of its online shopping business mixed in with the fast-growing and highly profitable data storage (cloud) services business it is building around the world.
Other giant tech shares to have taken a tumble include Alphabet’s Google, Microsoft, Salesforce, and Mastercard. One of the few bright spots has been electric vehicle maker Tesla after it reported its first profit in two years in what its CEO described as “an incredibly historic quarter”.
Tech and digital shares in Australia have also been slammed with the like of Nextdc Ltd (ASX: NXT), Carsales.com Ltd (ASX: CAR), WiseTech Global Ltd (ASX: WTC) and Kogan.com Ltd (ASX: KGN) all suffering heavy share price falls.
Underpinning the falls in growth shares are rising rates of return on U.S. government debt that is generally considered “risk-free” due to the government’s unquestionable solvency.
As the “risk-free” rate rises investors demand lower valuations from equities to compensate them for the substantial risks involved in buying shares in a private company.
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Motley Fool contributor Yulia Mosaleva has a financial interest in Amazon and Google shares. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Mastercard, and Tesla. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, carsales.com Limited, Kogan.com ltd, and Mastercard. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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