Amazon’s Mixed Earnings Report Causes Stock Drop

Amazon‘s stock faced a bit of a tumble in after-hours trading on Thursday after the company rolled out its second-quarter earnings report, which had a mix of good and not-so-good news.

On the earnings side, Amazon nailed it by reporting an adjusted profit of $1.26 per share on sales totaling $148 billion. Analysts had expected the company to make a little less, around $1.03 per share, but they predicted higher sales at about $148.67 billion, according to numbers from FactSet.

To put this into perspective, during the same quarter last year, Amazon managed to earn 65 cents per share on $134.4 billion in sales, so they’re showing some solid growth there.

One bright spot was Amazon’s cloud computing service, AWS, which brought in $26.3 billion in sales—a jump of 18.7% compared to last year. Analysts were anticipating a smaller growth rate of 17.6% for AWS before the report came out, so this was a pleasant surprise. The CEO, Andy Jassy, noted the positive momentum in AWS, mentioning that they’re making significant strides.

However, looking ahead, Amazon’s sales forecast for the current quarter fell short of what analysts had hoped for. The company expects to bring in around $156.25 billion in sales, which is below the $158.22 billion that analysts projected.

Additionally, Amazon dialed down expectations for operating income for the upcoming quarter too, estimating it at $13.25 billion, whereas analysts were looking at $15.3 billion.

Despite some challenges, the second-quarter report showed that Amazon is on a path to improve its profitability. Operating income shot up by 90% year over year to $14.7 billion. Interestingly, AWS contributed a whopping $9.3 billion of that operating income, but the North American retail operations didn’t quite meet expectations, bringing in $5.1 billion against the forecast of $5.4 billion.

Although AWS did well, other parts of Amazon’s business fell short of expectations. For instance, the advertising segment grew by 20% to $12.8 billion, but analysts were counting on it to hit $13 billion.

Sales from third-party seller fees also missed the mark, growing by 12% to $36.2 billion, which was just shy of the projected $36.5 billion.

Before the earnings news, Amazon’s stock had already dipped in regular trading. Even with this setback, the company’s shares have gained 21.5% this year and are up 38% in the last 12 months. However, Amazon had recently reached a record high and a $2 trillion market cap before struggling a bit in July.

Leading up to this report, Amazon’s stock held an IBD Composite Rating of 78, where the best growth companies typically score 90 or better. Their Relative Strength Rating stood at 82, meaning Amazon has outperformed 82% of stocks in the IBD database over the past year.