As it spends big on hiring and expanding its supply chain ahead of the holiday season, Amazon.com Inc. today reported lower-than-expected third-quarter profit and revenue — and not even better-than-expected results from its Amazon Web Services Inc. cloud unit could make up for the shortfall.

The company reported profit plunged by 49% from a year ago, to $3.2 billion, or $6.12 a share. Revenue rose 15%, to $110.8 billion.

Analysts expected a profit of $8.90 a share in its third quarter, down from $12.37 a share a year ago, as the company laps the online buying boom during the pandemic and steps up hiring and fulfillment investments. They expected revenue of $111.6 billion, up 16% from a year ago, at the high end of Amazon’s own range of 10% to 16% growth provided three months ago.

The company also reported operating income fell to $4.9 billion from $6.2 billion a year ago, though Amazon itself had guided operating income of $2.5 billion to $6 billion.

Amazon Web Services Inc., the company’s cloud computing unit, as usual outperformed. It posted an operating profit of $3.5 billion, up 38% from a year ago, on a 39% rise in revenue, to $16.1 billion, making up 15% of Amazon’s overall revenue. That growth was higher than the 37% the unit logged in the second quarter and the 29% in the year-ago quarter. Wall Street expected AWS to generate $15.5 billion in revenue.

The company also issued new guidance for the fourth quarter, saying it expects net revenue to grow between 4% and 12%, to $130 billion to $140 billion. That includes an unfavorable impact of about 60 basis points from foreign exchange rates.  Analysts had been reckoning it would gross $142.1 billion. Operating income is forecast at a wide range of zero to $3 billion, down from $6.9 billion a year ago.

As a result, Amazon’s stock fell about 4% in extended trading. Shares had risen about 1.6%, to $3,446.57 a share, in regular trading. They had risen about 5% on the year, far below the S&P 500’s 34.5%.

“We’ve always said that when confronted with the choice between optimizing for short-term profits versus what’s best for customers over the long term, we will choose the latter — and you can see that during every phase of this pandemic,” Amazon Chief Executive Andy Jassy (pictured) said in prepared remarks. “But, it’s also driven extraordinary investments across our businesses to satisfy customer needs — just one example is that we’ve nearly doubled the size of our fulfillment network since the pandemic began.”

Jassy also signaled even more expenses to come. “In the fourth quarter, we expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs — all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season. It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”

Indeed, all investor eyes this quarter were on Amazon’s costs, as the company said in mid-September that it plans to hire 125,000 new employees to fill jobs in fulfillment and transportation. It also said last month that it plans to hire 40,000 tech and corporate employees. The company has added a stunning 450,000 workers since the pandemic began early last year.

In addition, Amazon raised pay to an average of more than $18 an hour, offered sign-on bonuses of $3,000 to some workers and announced a plan to pay for worker tuition. And it has spent heavily on fulfillment infrastructure, including doubling container processing capacity and expanding its fleet of delivery aircraft.

“Amazon is in a phase of high investment,” CCS Insight Chief Operating Officer Martin Garner told SiliconANGLE. “Having expanded its capacity twofold during the pandemic, Amazon now has the physical space it needs in its warehouses but — for the first time in years – the limiting factor is that it’s struggling to hire enough people. The company is using coping strategies ranging from sign-on bonuses, through routing shipments from fulfillment centers where there are enough staff rather than the nearest one, to trying to flatten out the holiday season spike by spreading it over several weeks.”

But analysts and other observers say that by spending big now, Amazon has a better chance of succeeding in the crucial holiday season, when supply-chain issues are expected to have a major impact on retail.

“To retain its dominance as the e-commerce powerhouse, Amazon must keep its robust logistics and delivery networks running at peak operation this holiday season as they now have the majority of their logistics and last-mile delivery in-house,” Chris Hauca, managing director at Avionos LLC, which designs and implements digital commerce and marketing solutions for clients such as The Kellogg Co., Jones Lang LaSalle Inc. and Brunswick Corp., told SiliconANGLE. “This advantage should shield them from the possible shortages and shipping delays that smaller organizations will likely experience this holiday season.”

Another issue for Amazon this quarter was that its annual Prime Day sales event occurred during the second quarter, eliminating the boost in the third quarter when it has traditionally been held.

In the cloud

As has often been the case for years now, AWS provided all of Amazon’s overall profit, with $4.9 billion to a small operating loss of $31 million for the retail side.

Chief Financial Officer Brian Olsavsky said on the analyst conference call that some pandemic-hurt customers such as travel and in-person entertainment companies paused some spending last year, but that hesitance has eased. “A lot of customers accelerated their journey to the cloud,” he said, adding that AWS has signed more customers in a diverse set of industries. “We feel really good about the acceleration of growth.”

CCS Insight’s Garner attributed that acceleration to increasing cloud usage across a broad base of customers. “Some of this is companies who moved to cloud services before or during the pandemic now expanding what they’re doing,” he said. “But some comes from sectors that were suppressed during the pandemic, such as travel and entertainment, picking their spending back up as they start to return to normal.”

Amazon also showed strength in advertising, a somewhat stealthy but now significant business for the company. Revenue in its “other” segment, which is mostly ad sales, rose 50% from a year ago, to $8.09 billion. Olsavsky noted on the conference call that ads include those on streaming video.

The results come as other tech giants issued strong earnings results as well. Microsoft Corp. and Google LLC parent Alphabet Inc. pleased investors with results boosted in part by continued growth in cloud computing and, in the case of Alphabet, strong advertising growth. Even beleaguered Facebook Inc. reported better-than-expected profits earlier this week, though a shortfall in revenue gave investors pause.

Photo: SiliconANGLE