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Amazon stock ‘overreacted’ to the Q3 report: buy the dip?

By:
on Oct 28, 2022
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  • Amazon Web Services comes in well below the Street estimates in Q3.
  • Gene Munster remains bullish on the Amazon stock for the long term.
  • Shares of the tech behemoth tanked about 15% in after-hours trading.

Amazon.com Inc (NASDAQ: AMZN), on Thursday, said its profit from the closely followed “cloud” business came in about a billion-dollar shy of estimates in the fiscal third quarter. Shares are down about 15% after the bell.

Munster: ‘guidance wasn’t that bad’

For the current financial quarter, Amazon forecasts up to $148 billion in revenue on break-even to $4.0 billion of operating income. In comparison, analysts had called for $155 billion and $5.05 billion, respectively.

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Still, Loup Ventures’ Gene Munster says none of it deserved such a sharp sell-off in after-hours. On CNBC’s “Fast Money”, he said:

Seems like an overreaction. Paid unit growth continued to be strong, it was up 11% YoY. I was impressed by that. And this is being painted as a horrible guidance and I just beg the question, what was so horrible about the guidance?

Amazon Web Services was up 27% this quarter versus a 32% growth expected. But a deceleration in AWS, as per Munster, was pretty much a given considering the macro environment, currency headwinds, and what rivals, including Microsoft told us earlier this week and we covered here.

More than numbers, though, it boiled down to the sentiment, he added.

I think guidance wasn’t that bad. What was, is the read on how investors are thinking about large cap tech. Generals are being shot. It’s a mistake to think there’s some safety in some of these large cap tech companies.

How to play the Amazon stock?

For the current environment, Munster agreed the Amazon stock was expensive even after the sell-off. But he remains bullish on the multinational for the long term.

I’m still a believer in Amazon. I think what they’re building around logistics is something that no one else can compete with. But you really have to have a view of one, two, three years out when buying Amazon stock.

Including the after-hours sell-off, the Nasdaq-listed firm is no longer a trillion-dollar company. Amazon stock is now down more than 45% for the year.

Key takeaways from Amazon’s Q3 results

  • Sales jumped 15% on a year-over-year basis to $127.1 billion
  • Earned a $2.90 billion profit that translates to 28 cents a share
  • Consensus was 21 cents per share on $127.46 billion in sales
  • Advertising went up a slightly better-than-expected 25% to $9.5 billion
  • Subscriber services revenue up 9.0% missed expectations

Amazon noted a 20% increase in North American sales this quarter but currency headwinds resulted in a 5.0% hit to “international”, as per the earnings press release. Its stake in the electric vehicles startup, Rivian Automotive Inc, brought in $1.10 billion in Q3.

The juggernaut ended with 1.544 million employees versus 1.523 million in the same quarter last year. It is, however, committed to turning leaner. (read more)