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Amazon Records Lowest Quarterly Profit In A Year: What's Behind The Disappointing Results?

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For the third quarter, Amazon booked earnings of only 52 cents per share, badly missing average analyst estimates of 78 cents per share.

The company was able to rake in a net income of $252 million, marking the sixth straight quarter of the company being profitable. However, it is the lowest profit for a quarter that Amazon has posted in a year and it breaks the record profit streak that the company had going for the past three quarters.

Amazon was able to meet the average analyst estimate for revenues though, with the company's earnings release reporting $32.7 billion compared to the estimate of $32.69 billion, good for a 29 percent increase compared with the corresponding quarter last year. Why then did Amazon fall well short in earnings expectations?

Investment Mode For Amazon

While the company met revenue targets, Amazon spent a significant amount in investments that will help it meet the demand of consumers to receive their orders faster.

Toward this goal, Amazon saw its costs drastically increase in the quarter, as the company opened new warehouses and launched initiatives to be able to deliver items to customers faster.

Amazon expects such heavy investments to continue through the year. After opening three new warehouses in the first half, the company has opened 23 more across the globe since July.

The establishment of the new warehouses was described by Amazon CFO Brian Olsavsky as a "big undertaking," but it does prepare Amazon for the expected massive demand in the fourth quarter amid the frenzy of the holiday shopping season.

"Amazon is still in investment mode, and the Street should not necessarily expect linear growth in profitability," said Colin Sebastian, an analyst for Robert W. Baird & Co.

The Rise Of Amazon Web Services

Amazon Web Services, the cloud business of the company, continues to be a positive factor toward the growth of the company, now claiming the throne as the most profitable business for Amazon.

AWS collected an operating income of $861 million in the third quarter, which is more than double the $428 million in operating income that the division booked in last year's corresponding quarter. That growth, representing a 55 percent increase, is the largest that the division has ever recorded.

Disappointing Fourth Quarter Forecast

Despite the massive investments and the growth of AWS, Amazon released a disappointing forecast for the fourth quarter. The company said that it is expecting net sales of between $42 billion and $45.5 billion for the ongoing quarter, the midpoint of which falls short of the expected $44.58 billion forecast for the company.

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