Don’t Worry About Amazon’s Bad Quarter

amazon prime day

Last Thursday’s earnings report for Amazon (AMZN) was a head-scratcher. The company didn’t just miss its estimates on both revenue and earnings, but its earnings per share were far off the mark. Here are the highlights for the quarter:

Earnings per share were $1.00, missing analyst estimates by $0.56.

Revenue came in at $35.75 billion, up 21.9% from this time last year, but missing the consensus by $180 million (I’d that’s more of an in-line miss, considering it’s only off the consensus by 0.5%).

Expects in-line guidance for Q1 revenue of $26.5 billion to $29 billion (+17% to 28% year over year) versus a $27.65 billion consensus.

S. revenue stayed strong, growing 24% year over year, while international revenue lagged (+12%), mostly due to foreign exchange — it would have been +22% excluding forex.

Shares are down almost 10% since the report was released Thursday.

Free shipping killing margins

One of the major issues stopping earnings from keeping up with revenue is shipping and fulfillment costs, which spiked 37% from a year before. In a way, that’s not necessarily unexpected. After all, Amazon has been pushing its Prime Now to more and more cities throughout the year, with 25 now in total, giving rise to costly impulse buys.

Analysts aren’t worried

Despite all the doom and gloom the bears are spreading after Amazon’s miss, analysts don’t seem to think Q4 was anything but a blip. In fact, several of them reiterated “Buy” or “Outperform” ratings after the slide, with some of them even raising their price targets.

Mark Mahaney from RBC Capital Markets opined that despite the weak quarter, there are no fundamental problems that arose. He highlights that revenue was the closest to Amazon’s Q4 high-end guidance in five years, and that while fulfillment and shipping expenses were heavier than expected, that’s a good problem to have because it signals excess demand, not a structural problem. Plus, it’s keeping subscribers loyal.