Share price falls 15 percent
Last modified on Thursday, 23 October 2008 10:34
Seattle, Washington-based Amazon.com announced that its end of year revenue would fall short of that predicted by Wall Street analysts, which sent its per share price hurtling downward by 15 percent in after-hours trading. Despite reduced prices and an increased variety of products available at its online site, the distressed U.S. economy is affecting consumer purchases at online shopping mecca, Amazon.
Amazon and other retailers have indicated that consumers are being fiscally cautious with their purchases and cutting their expenses amid concerns of financial insecurity.
Sanford C. Bernstein analyst Jeffrey Lindsay said, "This is further confirmation that the economic downturn is much more pervasive than was earlier thought. Online retailers were thought to be immune to it, but this is an indication that that is far from true," he said. "They are definitely signaling much worse returns in the fourth quarter."
And to add an even more bizarre twist to the story, the U.S. dollar gained strength this week, which helps U.S. consumers, but cuts into the value of Amazon's international revenues, which currently account for 46 percent of Amazon’s total sales.
Amazon predicted net sales for Q4 of $6 to $7 billion, including its holiday sales. This represents growth from 6 percent to 23 percent, depending on the final numbers. Amazon indicated that the downturn is causing it to proceed cautiously and cited “limited visibility” of the financial future for business as the reason.
Overall, retail spending is down across the U.S. due to the uncertainty of the economy and concerns over jobs being cut. Forrester Research issued a report this week that predicted holiday spending would grow by only 12 percent this year over 2007 (growth last holiday season was 18 percent).
Still, even small growth is still growth. Consumers may spend less, but they will definitely shop during the holidays for gifts. It’s a tradition they will not give up. They may search for more bargains and purchase fewer large gift items, but most consumers will do what they can to make sure their families have gifts that they will be excited to open this holiday.
Asked how Amazon plans to manage costs should a global recession last up to two years, Chief Executive Jeff Bezos said: "We are going to continue to invest in the business, but we will be especially prudent about how we make those investments."