Amazon Risks Wipeout With Bad Guide. Apple Still Apple

Amazon and Apple closed the book on mega-cap US tech earnings Thursday with results that weren’t likely to inspire much in the way of investor enthusiasm.

Following underwhelming reports from Microsoft and Alphabet and another fiasco at Meta, Amazon came up short on the top line, and guided well below consensus for Q4.

Net sales of $127.10 billion were up 15% YoY, more than double Q2’s growth rate. The Street wanted a bit more. Excluding a $5 billion currency impact, revenue growth was 19%. The guide was the real problem. Amazon sees revenue of $140 billion to $148 billion this quarter, well below the $155.5 billion consensus expected (figure below).

At the low-end of the range, revenue growth in Q4 would be just 2% versus the same period last year. A 460bps FX headwind is baked into the company’s outlook.

At the risk of overstating the case, markets will likely be aghast at the guidance. At least temporarily. Amazon’s outlook gives markets another window into the worried minds of inflation-weary consumers. “There’s obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” Andy Jassy said Thursday, before describing the company’s focus on the consumer experience as “maniacal.” I’m not sure I’d use that word in a press release, but maybe that’s standard operating procedure at Amazon and I just never noticed.

Jassy insisted the company is “confident” it can “deliver a great experience for customers this holiday shopping season.” I don’t think anyone doubts Amazon’s ability to deliver, figuratively or literally. What’s in question is the consumer herself.

Also on investors’ radar: Costs at Amazon. Earlier this year, the company’s results foreshadowed an overcapacity problem which plagued many of America’s largest retailers during the following quarter. In April, CFO Brian Olsavsky suggested Amazon had too much warehouse space and more workers than it needed, after expanding rapidly in fulfillment to meet voracious demand in the aftermath of the pandemic. Last quarter, Jassy said the company was “making progress” on that front. On Thursday, he reiterated a version of that line. “We’re encouraged by the steady progress we’re making on lowering costs in our fulfillment network,” he said, adding that Amazon is “methodically working” on cost structure initiatives.

Notably, AWS net sales of $20.54 billion were short of estimates. Not by much, but even a small AWS miss was insult to injury atop the lackluster companywide revenue guide. Running quickly through the rest of the numbers, online store sales missed, physical store sales were in line, subscription services revenue missed, operating income fell 48% YoY (missing badly in the process) and fulfillment expense was better (i.e., lower) than expected.

Again: Markets are probably going to punish the guide. Mercilessly, even. Depending on the call, Amazon could be set for a steep selloff Friday, which could conceivably result in another very large single-session value destruction event, not unlike that seen on April 29.

Meanwhile, in Cupertino, things were generally stable. Apple’s numbers were fine, notwithstanding a slight miss on iPhones, where revenue of $42.63 billion was short of consensus by some pocket change.

Overall revenue of $90.15 billion was comfortably ahead of estimates, as was overall product revenue. Mac sales rose 25% YoY and beat by $2 billion. iPad revenue was a bit short, and service revenue was underwhelming, but wearables was a solid beat, and Greater China revenue held up ok, considering the circumstances. EPS beat.

The company’s installed base hit an all-time high and although CFO Luca Maestri described a “challenging and volatile macroeconomic backdrop,” he was also keen to point out (in case it wasn’t obvious) that it was a record September quarter for Apple.

The shares were lower after hours, but not enough to indicate any sort of real consternation. The stock could fade Friday in sympathy which what’s almost sure to be a bad day for Amazon, and thereby another challenging session for tech overall, but Apple should be the least of anyone’s worries right now.

Cook offered a characteristically utopian assessment of the house Steve built. Apple, Cook said Thursday, is “deeply committed to protecting the environment, securing user privacy, strengthening accessibility and creating products and services that can unlock humanity’s full creative potential.”