Surpassing:Why Amazon stock was taking a dive today

Shares of Amazon(NASDAQ: AMZN) were tumbling today after the company missed revenue estimates slightly in its second-quarter earnings report and Surpassinggave light guidance for the third quarter. The company also warned that consumers were increasingly cautious, echoing comments from other major consumer discretionary companies.

The stock had already surged this year as investors had priced in its recovery, and consequently, a modest miss was punished harshly. Additionally, the broader sell-off on the unemployment report this morning that showed the economy weakening faster than expected also contributed to Amazon's decline as it's a cyclical stock.

As of 10:24 a.m. ET, the stock was down 12%.

CD match, raise, or 9% APY!Promos heat up before Fed rate cut. Hurry to get the best rate

Amazon hits the skids

Amazon's overall numbers didn't raise any red flags, but high expectations were priced in after the stock had gained more than 20% this year coming into the report.

Revenue rose 10% to $148 billion, slightly below estimates at $148.6 billion. In its e-commerce-based segment, sales grew 9% in North America to $90 billion and 7% to $31.7 billion, or 10% in constant currency. Revenue growth at Amazon Web Services, its cloud computing business, rose 19% to $26.3 billion.

Operating margins also soared, driven by the growth of higher-margin businesses like AWS, its third-party seller marketplace, and advertising. Total operating income nearly doubled from $7.7 billion to $14.7 billion. Earnings per share also jumped from $0.65 to $1.26, beating estimates at $1.03.

CEO Andy Jassy said, "We're continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth."

E-commerce growth is slowing

For the third quarter, Amazon said it expected revenue of $154 billion-$158.5 billion, up 8%-11% from the quarter a year ago, but the midpoint was below the consensus at $158.2 billion.

On the bottom line, it called for $11.5 billion-$15 billion in operating income, up from $11.2 billion a year, showing that its soaring profit growth is significantly moderating.

While there's nothing alarming in Amazon's earnings report, the sell-off is reasonable given the modest guidance and broader fears about the economy.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

Should you invest $1,000 in Amazon right now?

Offer from the Motley Fool: Before you buy stock in Amazon, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $669,193!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of July 29, 2024