Home » Amazon » Amazon Reports Best-Ever Earnings But Still Disappoints

Amazon Reports Best-Ever Earnings But Still Disappoints

29 January 2016

From The Wall Street Journal:

Amazon.com Inc. on Thursday delivered the largest quarterly profit in its 20-year history, but investors apparently are thirsty for more after subsisting on thin margins for years.

The online retailer’s shares plunged as much as 15% in after-hours trading, erasing more than $30 billion in market value despite a profit that more than doubled to $482 million in the holiday period. It was also the third straight quarter of profits, the first time Amazon has done so in more than three years.

The failure to meet outsize expectations underscores the pressure Amazon now faces after teasing Wall Street in recent quarters with tighter costs and black ink. Amazon until recently put nearly every dollar it generated back into the business.

The company was one of the big growth stories among technology stocks in 2015, more than doubling its market value to over $300 billion last year and easily outperforming other tech giants like Alphabet Inc., Apple Inc. and Facebook Inc.

. . . .

For the year, Amazon passed $100 billion in revenue for the first time in its two-decade history. It took rival Wal-Mart Stores Inc. 35 years to reach the same mark in 1997, two years after Amazon.com opened for business.

Amazon has captured more customers by aggressively building out new warehouses near urban centers to speed deliveries and by bulking up its Prime unlimited shipping membership with streaming video and other benefits.

And it has built up a huge lead on rivals in offering cloud-computing services through its lucrative Amazon Web Services unit, which rents computing power to other companies from thousands of servers. Sales from that business jumped 69% to $2.4 billion, while operating profit nearly tripled to $687 million, reinforcing its place as Amazon’s fast-rising growth engine. Still, AWS’s revenue growth slowed from 78% in the previous three months as Amazon drained more costs.

. . . .

The company said nearly half of the units of merchandise it sold in the quarter came from third-party sellers who store their goods in Amazon warehouses. That is good news for Amazon because most observers assume such sales are generally more profitable than the merchandise it purchases itself for resale.

Link to the rest at The Wall Street Journal (Link may expire)


21 Comments to “Amazon Reports Best-Ever Earnings But Still Disappoints”

  1. Gee, with Amazon smashing so many records, the most disappointing thing I found was ‘The Wall Street Journal’ …

  2. A bit of an oversell on the cloud services business: Amazon is neck and neck with Microsoft for number one, not far outpacing.

    As for the Wall Street over-reaction, the same thing happened to Apple a year or so ago and Microsoft further back. Overhyped expectations followed by panic in the face of objectively good news.

    24% growth? Over $35B in quarterly sales? No, it’s “we expected $36B!!!”.

    Wall Street is weird.

  3. Guess those folks bailing out are short-termers. I’m in for the long haul. Last I looked today (12:30-ish Eastern time), the stock was down 52, the same amount it went up yesterday. I was watching after the bell trading until last night. The biggest drop I saw was -85.

  4. I believe the sentence in the headline is missing its direct object.

    Amazon disappoints…whom?

    Because I doubt Amazon customers were disappointed.

    • Amazon disappoints…whom?

      People who own Amazon shares. Who are betting on ever-growing profits to justify the price of those shares.

      • As many have said previously (including me), if you’re only looking at ‘profit’ to determine the value of a company, then you’re not a smart investor.

      • Partly, but moreso it’s “Amazon disappoints analysts.” Because that’s who had “outsize expectations” in the first place.

        There are a lot of people getting paid a lot of money to be completely wrong about markets and value right now. If you follow tech blogs, you see it all the time. Amazon wasn’t the only one who “disappointed”; analysts were also disappointed by Apple’s earnings reported on a record-breaking quarter of revenue.

        See also every headline that “reports” Apple delayed some as-yet-unannounced iDevice or other.

        So yes, in the end the shareholders were disappointed, but only because those analysts were disappointed, because they don’t know much about (as Matt notes) how to determine the value of a company. Because one would think that, technically, given Amazon doubled its profit, those stocks would be worth more. That they weren’t is solely because those analysts’ incorrect guesses disappointed other people who were considering buying the stocks.

        • The analysts do know how to value a company. It’s the novices like most of us that don’t. Also it’s the institutional investors that are controlling the market price of the stock; not the small time investors. How many shares of Amazon stock could an average person afford to buy?

      • Lots of people buy stock based on an expected set of future events. Their evaluation is based on those events happening. When they don’t, they acknowledge their expectations were wrong, and adjust their evaluation to what actually happened.

        Buyers bid on what actually happened. The stock price falls. This is normal price-discovery stuff that happens everyday in auction markets.

  5. Sigh. I wish I had money to buy Amazon stock.

  6. For some people, the headline could read, ‘Amazon cures disease forever,’ and it would still disappoint.

    I wish we had bought more stock.

    • The disappointment is that past expectations exceeded today’s reality. Those with a pattern of expecting too much are routinely disciplined by the markets.

      Note someone bought all that sell-off. These are usually the short-term traders so often criticized in these pages for lacking a long-term perspective.

      • The disappointment is that past expectations exceeded today’s reality.

        Isn’t it that present expectations exceeded the past’s reality? Because I think those with a pattern of expecting too much routinely base their expectations on the reality they hope for.

        • For buyers, that’s the case. They have an expectation today for what will happen tomorrow. So they pay a stock price today based on those expectations.

          But we don’t see the full cycle play out until tomorrow. That’s when we see if they were right.

  7. This is common with many tech companies. Apple set record profits as well but the stock went down based on future expectations. Amazon dropped almost 8% today but Microsoft was up 6% on better than expected performance and Facebook was up as well because of enormous profits.

  8. The Graphs of revenue (growing) versus net profits (zero year on year) seem to support the idea that Amazon is on a growth path (plowing everything back into the business).


    So the next questions begs.

    Does the growth phase end when the competition is finished and the Sherman Act potentially kicks in to break up Amazon (ala Bell, ala Standard Oil) ?

    So then. Where do we find graphs for size of diminishing book seller competition versus growing Amazon to work out an approximate point of the change over ?

    • I think Amazon’s cash flow and free cash flow are the best indicators of their success.

      In very gross terms, spend the cash flow on new ventures, and it’s an expense item that reduces profit. Don’t spend it on new ventures, and it migrates into the profit column.

      In both cases, the economic value accrues to Amazon.

      • But in the latter case, they benefit less because government(s) tax profits and don’t tax investment.

        I wonder if Bezos letting Amazon show a profit is about letting government get a bit of tax to shut up the ADS lobbyists…

        (It’s not as if they are running out of things to invest in.)

        • Sure. Corporate tax is silly because it makes firms do things that are not the most effective or efficient.

          • Counter-productive, too: taxing foreign earnings encourages investing them outside the US. Also encourages reincorporating elsewhere.

            Taxing companies is simply a backdoor way of taxing consumers.

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