Amazon Reports Lackluster Q1 Sales Forecast

Amazon.com Inc posted first quarter sales forecast that were lower than Wall Street estimates, warning that new regulations in India had created uncertainties around one of its key growth markets and saying it would step up investments in 2019.

Shares of the company slipped 5 percent to $1,635 after the bell.

The outlook overshadowed Amazon’s record sales and profit during the holiday season. Fast and free shipping aided the world’s biggest online retailer boost revenue by 20 percent. A lucrative cloud computing business, as well as fees that merchants pay Amazon to ship and advertise their products, has thickened the company’s profit margin.

Net income increased 63 percent to $3 billion for the fourth quarter, ahead of analysts’ estimates.

Yet investors focused their attention on Amazon’s international operation, where the company has long lost money in the hopes of future profit. Though its international operating loss sank to $642 million in the quarter from $919 million a year earlier, new regulations are expected to take a toll.

The rules seek to protect local businesses by prohibiting foreign e-commerce companies from selling products via vendors in which they have an equity interest.

Brian Olsavsky, who is Amazon’s chief financial officer, said on a call with reporters that the “situation in India is a bit fluid right now.”

The company started removing a wide array of products from its India website late on Thursday to comply with the new foreign investment curbs that will start on February 1.

Even so, Olsavsky said that “India remains a good long-term opportunity.”

Colin Sebastian, an analyst at Baird Equity Research, said, “The issues in India are taking a toll on the Q1 outlook, even as growth overall slows domestically.  Not a bad report, but there are enough questions where (the) stock will likely be under pressure.”

Investments to Increase This Year

The company predicted net sales of between $56 billion and $60 billion for the first quarter, missing analysts’ average estimate of $60.77 billion, according to IBES data from Refinitiv.

The guidance includes two percentage points of negative impact from changes in currency exchange rates.

Olsavsky said that investments would increase this year. The company had little need to splurge in 2018 due to prior spending on warehouses, headcount, and other area, bolstering profit. However, this year’s investments will rise, although Olsavsky did not where or how much.

“As a result, the profit story in ’19 may not be as good as it was in ’18,” said Tom Forte, analyst at DA Davidson, adding that this might not be a bad thing. “If they are stepping on the accelerator, that means they like what they’re seeing, and it’s worthy of more investment.”

Amazon predicted operating income will be between $2.3 billion and $3.3 billion this quarter, compared with $1.9 billion a year earlier.

A large chunk of the company’s hiring has gone to Amazon Web Services, its lucrative business selling data storage and computing power in the cloud. Revenue for the unit surged 45.3 percent to $7.43 billion, beating an average estimate of $7.26 billion.

Overall, the net sales for the fourth quarter were $72.38 billion and beat analysts’ average estimate of $71.87 billion on the back of a strong holiday season, which includes the major US shopping event Black Friday.

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