Amazon and PepsiCo's Earnings Misses: A Blip or a Trend?

Amazon and PepsiCo, two of the world's most prominent companies, recently reported mixed quarterly results, with Amazon missing on revenue and guidance, and PepsiCo posting lower-than-expected revenue. These earnings misses have raised questions about the companies' long-term fundamentals and the broader market's outlook. Let's delve into the factors contributing to these misses and their implications for investors with a long-term perspective.



Amazon's Earnings Miss

Amazon reported better-than-expected earnings and revenue for the fourth quarter but gave disappointing guidance for the current period. The company's stock slipped more than 5% in extended trading, indicating investor dissatisfaction with the outlook. Several factors contributed to Amazon's earnings miss:

1. Currency exchange rates: Amazon's guidance for the current quarter anticipates an unusually large, unfavorable impact from foreign exchange rates, amounting to $2.1 billion or 1.5%. This is due to the strengthening U.S. dollar, which makes overseas sales worth less in U.S. dollars. This factor is temporary and relates to short-term currency fluctuations, not Amazon's long-term fundamentals.
2. AI investments: Amazon is investing heavily in artificial intelligence, which has led to increased capital expenditures. While these investments are expected to drive long-term growth, they have put pressure on short-term earnings. Amazon's capital expenditures totaled $27.8 billion during the quarter, compared with $14.6 billion a year ago. This increased spending is a long-term strategy to maintain Amazon's competitive edge in AI and cloud services.
3. Slowing revenue growth: Amazon's revenue growth slowed to 10% year-over-year, down from 15% in the previous quarter. This is a short-term concern, as Amazon's long-term growth prospects remain strong, driven by its diverse business segments and global presence.



PepsiCo's Earnings Miss

PepsiCo reported mixed quarterly results, with demand for its snacks and drinks falling in North America for the fifth straight quarter. The company's shares dropped more than 2% in premarket trading, reflecting investor concerns about the company's performance. Several factors contributed to PepsiCo's earnings miss:

1. Weak demand in North America: PepsiCo's North American business, which accounts for a significant portion of its revenue, has been struggling with weak demand. The company's snacks and beverages volume fell in North America for the fifth straight quarter. This is a short-term concern, as PepsiCo is confident that its North American business will accelerate in 2025. The company is taking actions to improve performance in North America, such as pushing more into protein drinks and focusing on away-from-home opportunities.
2. Recall impact: Quaker Foods North America, a division of PepsiCo, is still recovering from a recall in the prior December. The recall has negatively impacted the division's volume, which fell 6% in the quarter. This is a short-term issue, as PepsiCo expects Quaker's performance to improve in 2025 as it laps the recall impact.
3. Inflation and consumer caution: Consumers in the U.S. have been more cautious with their spending, snacking less and making fewer purchases at convenience stores. This is a short-term concern, as consumers may return to their pre-inflation spending habits once economic conditions improve.



Implications for Investors with a Long-Term Perspective

Both Amazon and PepsiCo experienced short-term earnings misses due to factors such as currency exchange rates, AI investments, slowing revenue growth, weak demand in North America, recall impact, and inflation-driven consumer caution. These factors do not necessarily reflect long-term fundamentals, as both companies have strong growth prospects and are taking actions to address their short-term challenges.

For investors with a long-term perspective, the implications of Amazon and PepsiCo's earnings misses are as follows:

1. Volatility: The stock market is known for its volatility, and Amazon and PepsiCo's stock performances are no exceptions. While the companies' stock may experience short-term fluctuations, investors with a long-term perspective should focus on the companies' fundamentals and growth prospects.
2. Growth opportunities: Despite the earnings misses, Amazon and PepsiCo remain growth-oriented companies with strong track records of innovation and expansion. The companies' investments in AI, protein drinks, and other emerging technologies position them well for future growth.
3. Valuation: Amazon and PepsiCo's stock prices may be volatile in the short term, but the companies' fundamentals and growth prospects suggest that they are still valuable investments for long-term investors. The companies' P/E ratios, for example, are still relatively low compared to other tech giants and consumer goods companies, indicating that there is still room for growth.
4. Risk management: Investors should be aware of the risks associated with investing in companies like Amazon and PepsiCo, which are heavily reliant on international sales and have significant exposure to currency exchange rates. Diversifying one's portfolio can help mitigate these risks and ensure that investments are well-positioned for long-term growth.

In conclusion, Amazon and PepsiCo's earnings misses highlight the importance of maintaining a long-term perspective when investing in the stock market. While short-term fluctuations may be concerning, investors should focus on the companies' fundamentals and growth prospects to make informed decisions about their investments. The broader market's reaction to these earnings misses could be mitigated or exacerbated by political events or market noise, so it is essential to monitor the situation closely and consider the broader context when assessing the potential implications of the earnings misses.