Amazon beats estimates, and Wall Street breathes a sigh

By Noel Randewich and Saqib Iqbal Ahmed

SAN FRANCISCO/NEW YORK (Reuters) - Wall St breathed a sigh of relief on Thursday after Amazon.com's quarterly results beat estimates, sending the online retailer's stock higher and alleviating fears of deepening troubles across the FANG group after Facebook's results sent its shares reeling.

A 19 percent plunge in Facebook shares rattled Amazon.com investors earlier in the day, with traders in Amazon's options displaying heightened defensiveness ahead of its June-quarter report after the bell.

Facebook late on Wednesday warned about a margin hit as revenue growth slows and user privacy costs climb.

The social network's dismal forecast followed a disappointing report by fellow FANG company Netflix on July 16. The so-called FANG stocks, which also include Google-owner Alphabet , have been central to Wall Street's rally in recent years, and any serious weakness in their revenues and profit expansions could make future stock market gains more difficult.

 

Following its upbeat report after the bell, Amazon's stock rose 3.5 percent, more than making up for some of its 3 percent loss during Thursday's trading session.

As Amazon expands into grocery retail through its acquisition of Whole Foods Market last year, and as more businesses move their IT departments onto its cloud infrastructure, its stock price has been red hot. It recently traded at 110 times expected earnings, compared to more-profitable but slower growing Apple's valuation of 15 times earnings.

Amazon's stock market value has surged more than 50 percent in 2018 and briefly reached a record $900 billion on July 18 before easing to $880 billion on Thursday before the close.

(Graphic: Big Five Market Cap - https://reut.rs/2JUqwpy)

In its report, Amazon forecast operating income of between $1.4 billion and $2.4 billion for the third quarter, beating analyst estimates of $843 million. The Seattle-based company's total net sales rose 39 percent to $52.89 billion, missing the average analyst estimate of $53.40 billion.

(Graphic: Big Five Revenue - https://reut.rs/2LDAy3f)

"Since Amazon hit $1,000 a share, we've taken some money off the table, but we're not selling today," said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. "Of all the tech companies, Amazon to me is the most vital. It's the one with the brightest future."

(Reporting by Saqib Iqbal Ahmed; Editing by Meredith Mazzilli and Sandra Maler)