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Amazon Q3 Earnings: What You Should Know

Shares of Amazon.com (NASDAQ: AMZN) took a hit on Thursday and were down about 7% during after-hours trading as of 5:10 p.m. EDT. The stock's slide reflects disappointment in the e-commerce giant's third-quarter update. While the quarter's revenue came in above analysts' forecast, earnings per share and revenue guidance both missed consensus estimates.

Here's a closer look at Amazon's third-quarter performance -- and exactly how the company missed the Street's expectations.

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Image source: Getty Images.

The headline figures

Amazon's third-quarter revenue rose 24% year over year to $70 billion. This was at the top end of management's guidance for revenue between $66 billion and $70 billion and higher than analysts' consensus forecast of $68.8 billion. 

But Amazon's aggressive investment to transition from Prime two-day delivery to one-day delivery is weighing on profitability. EPS for the period came in at $4.23, down from $5.75 in the year-ago quarter. In addition, the metric was lower than analysts' average forecast of $4.62.

"Customers love the transition of Prime from two days to one day -- they've already ordered billions of items with free one-day delivery this year," said CEO Jeff Bezos in the company's third-quarter earnings release. "It's a big investment, and it's the right long-term decision for customers."

Soaring operating expenses

Capturing the company's big spending, Amazon's operating expenses for its North America segment increased 28% year over year and 12% sequentially.

On a consolidated basis, Amazon's operating expenses were up 26% year over year.

Strong revenue growth from AWS

Importantly, Amazon Web Services (AWS) saw impressive revenue growth and a year-over-year improvement in profitability.

AWS revenue increased 35% year over year. While this was a deceleration from 37% growth in Q2, it's not as steep as the deceleration from 42% growth in Q1 to 37% growth in Q2.

The segment's constant-currency operating income increased 6% year over year -- a significant deceleration from 24% growth in Q2.

Looking ahead

For Amazon's fourth quarter, management guided for net sales between $80.0 billion and $86.5 billion, representing 11% to 20% year-over-year growth. On average, analysts were expecting Amazon to guide for fourth-quarter revenue of $87.4 billion.

In line with the company's plans to continue investing aggressively in one-day shipping, it expects operating income in Q4 to be between $1.2 billion and $2.9 billion, down from $3.8 billion in the fourth quarter of 2018.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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