Two major technology giants have reported their earnings for quarter 3 of 2018, with differing results. Amazon’s third-quarter earnings beat most market estimates, however the ecommerce site’s revenue and fourth-quarter outlook fell short of expectations. As a result Amazon shares fell 10 percent in premarket on November 2, 2018, slipping to $1,600 a share.
Commenting on this development for Digital Journal, Clement Thibault (from Investing.com) notes the changes are a result of the current state of the ecommerce market: “The biggest risk for Amazon is the market itself underperforming. Over the past few years, Amazon has overperformed when the market was doing well, and underperformed when the market struggles.”
He adds: “We’ve seen a prime example of that in the past week, but it is a recurring phenomenon. As long as the U.S. market stays on track, Amazon will continue to perform. The company isn’t cheap and certainly isn’t undervalued at the moment, but an industry-defining company seldom comes cheap.”
However the potential for Amazon to grow remains, according to Thibault: “With the right mix of profits from cloud computing and enormous revenues from its retail operation, Amazon is currently dominating multiple industries. However, the company also faces several challenges, including rising logistic costs and government intervention.”
The future all comes down to advertising: “Currently, Amazon is a massive revenue-generating machine, one that’s well oiled for future growth,” Thibault explains. “This gives investors powerful incentive to stick with its shares. Amazon is also primed to benefit from an array of opportunities as well, such as the ability to expand into new industries, and perhaps one of the more overlooked potential revenue streams — advertising.”
With Google owner Alphabet, the corporation reported its third quarter earnings, missing revenue expectations but beating on the bottom line. This is despite Alphabet’s overall revenues being up 21 percent year-over-year. This slower-than-expected growth won’t last long, according to Thibault: “While Alphabet is getting closer to bear market territory, the bull thesis hasn’t changed, and most of its troubles are temporary.”
This is because “Alphabet is still leading the pack as far as online advertising goes, and its position online — with or without Google Plus, one of its failed ventures — is unquestionable.”
The main risk comes with the Google brand and public perceptions, Thibault adds: “Overall, there aren’t many negative factors threatening its business, except for maybe one – the battle over public opinion. The latest data leak, along with Alphabet’s apparent willingness to censor results in order to penetrate the Chinese market, appears to have swayed some of the public against it.”
Once the Google-plus issues are addressed (as reported by Digital Journal), strong market growth is forecast especially with a new deal with the Chinese government: “Ethics aside, success in the Chinese market will undoubtedly turn Alphabet into a trillion-dollar company. Alienating some of its western users to pander to the Chinese government is a risky move, but with no significant direct competitor in sight, those alienated have almost no way to avoid Alphabet or its products.”
