Comparing growth rates from one quarter to the next just creates confusion and noise that doesn’t matter in the grand scheme of things. Investors should be encouraged because it is still early days for the cloud market, especially as companies are just starting to figure out how to use AI with their data. Target now projects “a low-low-single digit decline” in same-store sales.
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Management also expects the company’s operating margin to decline further, to 3%. Target was forced to issue heavy discounts to clear out excess inventory. That weighed heavily on the discount retail chain’s profitability. Its gross and operating margins fell to 24.7% and 3.9%, respectively, in the third quarter, from 28% and 7.8% in the prior-year period. Target’s earnings per share, in turn, plunged 49% year over year to $1.54. As a result, patient investors may wish to view today’s sell-off as an opportunity to buy shares in this e-commerce and cloud titan at a sizable discount.
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The crowd selling this stock en masse is looking past a trio of important bullish details. “Europe has been weaker than North America, although we see the impact of consumers tightening their belts a bit globally,” Olsavsky said. He referenced entering a period of “uncharted waters,” with tightening budgets, inflation still high, and high energy costs.
Here’s why Wall Street soured on Amazon today
- Most technology companies that rely on advertising to generate revenue have been decimated this year.
- The company reversed plans for a new fee it was going to charge to third-party merchants, and Wall Street seemed underwhelmed with the company’s device presentation yesterday.
- Comparing growth rates from one quarter to the next just creates confusion and noise that doesn’t matter in the grand scheme of things.
- Operating margins also soared, driven by the growth of higher-margin businesses like AWS, its third-party seller marketplace, and advertising.
- Alphabet’s third-quarter earnings report showed that companies are still reluctant to spend big on cloud services in an uncertain business environment.
The good news is the cloud computing industry certainly isn’t going anywhere. It’s slated to become a $1.5 trillion annual opportunity by 2030, so the slowdown in AWS might simply be a temporary blip. Separately, Bloomberg reported last night that the company is ditching plans to charge a fee to merchants who don’t use its shipping services, a possible response to a Federal Trade Commission’s (FTC) antitrust investigation.
It offers superior bottom-line growth, too
The company reversed plans for a new fee it was going to charge to third-party merchants, and Wall Street seemed underwhelmed with the company’s device presentation yesterday. Worse still, chief financial officer Michael Fiddelke said during a conference call with analysts that the downturn could persist into 2023. A forecast from FactSet suggests the S&P 500’s third-quarter sales will likely only improve to the tune of 5% year over year. However, Microsoft Azure posted strong growth of 29% YOY, which suggests the bull case is still alive for the cloud leaders. Tech giants are sending mixed signals about the cloud market, but it’s still in the early innings of growth.
“We are preparing for what could be a slower growth period, like most companies,” Olsavsky said. The analyst also sees increased e-commerce competition impacting its fourth-quarter performance but maintained an outperform rating and a price target of $165. Investors are so consumed by these two red flags that they’re not seeing the bigger, bullish picture.
When the economy is weak, businesses trim their marketing budgets for fear they’ll get a lower return on their investment as consumers are buying fewer products. 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. Long-term investors shouldn’t be concerned about near-term demand trends in cloud spending.
Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Headlines have turned considerably more pessimistic in just the past few days, dragging the S&P 500 down from its mid-July peak on worries of a weakening economy. Even before Friday’s poor jobs report for July, bond ratings agency Fitch expressed fresh concerns that loan defaults and delinquencies were set to rise in the latter half of the year. Since then, the International Monetary Fund has dialed back its full-year GDP growth forecast for the United States from 2.7% to 2.6% in front of expected 2025 growth of only 1.9%.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Alphabet’s third-quarter earnings report showed that companies are still reluctant to spend big on cloud services in an uncertain business environment. Google Cloud’s year-over-year (YOY) growth decelerated to 22% from 28% in the previous quarter. Most technology companies that rely on advertising to generate revenue have been decimated this year.