Stocks ended the week with another day with heavy sales. Dow Jones Industrial Average (DJINDICES: ^ DJI) was down over 500 points in the morning, but recovered somewhat in the afternoon. S & P 500 (SNPINDEX: ^ GSPC) also had a big loss.
Today's stock market
|Index||Percent change||Point Change|
|Dow||Dow|| ] (1
||(296.24)||S & P 500||(1.73%)||(46.88)|
All sectors fell today, but consumer stocks were hit particularly hard, with Consumer Discretionary Select SPDR ETF (NYSEMKT: XLY) lost 3.1%. Technology and Internet shares also fell, with the new communication services Select SPDR ETF (NYSEMKT: XLC) falling 2.7%.
Two closely-monitored companies reported revenues last night that ran investor concerns.
Amazon Feeder Causes Consumption Expenses
Shares in Amazon tumbled 7.8% despite the company reporting a huge profit after it issued what the market considered a weak consumer spending forecast in the last three months of the year. Net sales in the company's third quarter increased 29% to $ 56.6 billion, missing expectations of $ 57.1 billion, but come above the center of the guide. Earnings per share of $ 5.75 were 11 times EPS in the period one year ago and blew the analyst consensus at $ 2.46.
Operating cash flow increased by 57% to $ 26.6 billion and free cash flow increased 93% to $ 15.4 billion. Sales growth for Amazon Web Services (AWS), while still dry, was a few points at 46%, but operating profit margin improved to 31%, compared to 26% year-on-year, thanks to efficiency improvements in Amazon's data centers. North America sales increased 35% and generated revenue of $ 2 billion, compared with only $ 112 million in Q3 last year. International sales increased by 13% and operating profit fell to $ 385 million from a loss of $ 936 million last year.
What apparently spooked investors were forecast for Q4 sales between $ 66.5 billion and $ 72.5 billion, under the analyst's consensus of $ 73.9 billion. Finance Director Brian Olsavsky at the conference call pointed out that the fourth quarter will be the first report since the Lapping of the entire Foods acquisition and that a change in accounts for subscriptions will spread Q4 revenues to other quarters. However, despite the good results, the income and sales guidance was enough to give investor concerns about slowing down growth.
The alphabet reports a big earnings gain
The profit in Alphabet, the parent company of Google, was unexpectedly strong in the third quarter, but a slight loss of revenue was enough to hurt the stock. Class C shares fell 2.2%, while the A shares fell by 1.8%.
Revenue increased by 21.5% to $ 33.7 billion, short of analyst's consensus of $ 310 million. Earnings per share jumped 36.5% to $ 13.06, well above expectations of $ 10.42.
Google advertising revenue increased by 20.3% to $ 29.0 million. Non-advertising revenue, including the company's cloud industry and Google Play, grew 29.2% to $ 4.64 billion. and other games, including the early stages of the alphabet, such as Google Fiber, Verily Life Sciences and Waymo, had an income gain of 24.8% to $ 146 million. Traffic procurement costs, an important component of Google's spending, retained 23% of advertising revenues.
A stronger dollar was a headline for Alphabet in the quarter, with currency losses lowering the top line by $ 305 million – basically the full amount of income freak.
The alphabet does not provide guidance, but CFO Ruth Porat said at the conference call: "We continue to be pleased with the underlying momentum of our advertising business, as we use our strength in machine learning to improve experience for users and advertisers."
John Mackey, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of The Motley Fool's Board. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's Board. Jim Crumly owns shares in Alphabet (C-shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A-shares), Alphabet (C-shares), and Amazon. Motley Fool has an information rules.