

Amazon misses earnings target but shares still jump 10% - wr1472
http://blogs.wsj.com/marketbeat/2013/01/29/amazon-misses-earnings-view-and-shares-rise/

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dionidium
I've been enjoying Matthew Yglesias's snark on this topic for a while [0]:

 _That's because Amazon, as best I can tell, is a charitable organization
being run by elements of the investment community for the benefit of
consumers. The shareholders put up the equity, and instead of owning a claim
on a steady stream of fat profits, they get a claim on a mighty engine of
consumer surplus. Amazon sells things to people at prices that seem impossible
because it actually is impossible to make money that way._

Earlier [1]:

 _If Amazon does have an evil Part B to its plan where it uses its monopoly
status to jack up profit margins, that at least gives competitors a fighting
chance. The real risk is that "sell the devices at cost and make it up on
e-books, but wait, we don't make profits on those either" is all there is to
the plan, and Amazon's investors have just unleashed a storm of locusts on the
world that will ruin everyone else's profits._

...

 _But for consumers, it's great. An Amazon Prime membership is the most
outrageously good deal in commerce today. But competitors should be afraid.
It's an amazing deal and you can't beat it precisely because Amazon can't make
it work, either!_

[0]
[http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_pro...](http://www.slate.com/blogs/moneybox/2013/01/29/amazon_q4_profits_fall_45_percent.html)

[1]
[http://www.slate.com/blogs/moneybox/2012/11/05/amazon_destro...](http://www.slate.com/blogs/moneybox/2012/11/05/amazon_destroyer_of_worlds.html)

~~~
cm2012
Except 3rd party sellers are a huge part of Amazons business and is the
fastest growing. We make plenty of profit, and they make 20-33% of that from
us.

------
akandiah
From the comments section on the article:

 _The Emperor has no clothes_

 _The company missed earnings estimate (21 c instead of 29 c), missed on
revenues, year-over-year, in 2012 net loss was $39 million, or $0.09 per
diluted share, compared with net income of $631 million, or $1.37 per diluted
share, in 2011. Free cash flow decreased 81% to $395 million for the trailing
twelve months, compared with $2.09 billion for the trailing twelve months
ended December 31, 2011._

 _The stock is trading at 295 times its free cash flow and free cash flow is
not growing. IMO, the stock is worth at best a generous 30 times next year’s
estimated EPS of $1.70, or $51 a share. Frankly, even the current consensus
$1.70 for FY 2013 looks rosy, when the company makes only 21c in its best,
holidays-sales quarter. E-Books or anything else that builds revenues without
earnings, that is Groupon flavor “growth”. Sell-side analysts will have to
come up with creative theories to justify their Buy ratings._

~~~
incision
That kind of "should" analysis always make me laugh. AMZN should be $51,
something else should be $3500. You can find this kind of number-crunching to
support and refute every move of every stock with volume.

I'm sure there's a great saying or time-tested analogy about concerning
yourself with what a stock should be doing, as opposed what it is doing, but
I'm at a loss.

~~~
jpdoctor
> _I'm sure there's a great saying or time-tested analogy about concerning
> yourself with what a stock should be doing, as opposed what it is doing, but
> I'm at a loss._

"Markets can remain irrational longer than you can remain solvent."

\-- John Maynard Keynes

~~~
gfodor
This oft-quoted point is only true if you are trading on margin. A better way
to phrase it to me is "Markets can remain irrational longer than you can
remain alive." or, more succinctly also from Keynes, "In the long run, we are
all dead."

~~~
jpdoctor
> _This oft-quoted point is only true if you are trading on margin._

No. Insolvency can happen with any kind of debt, not just margin.

~~~
gfodor
The point is if you go long AMZN right now you don't have to worry about
becoming insolvent as much as becoming dead before the profits come rolling
in.

------
gfodor
one word: monopoly. investors are investing/speculating in the prospect of
Amazon becoming a monopoly in online retail and potentially also cloud
computing, both potentially several hundred billion dollar businesses. short
term valuation analysis is missing the deep, almost unparalleled speculative
nature of this stock.

the problem is the stock is priced so high now that this path is the _only_
path where the valuation is reasonable.

~~~
snambi
monopoly? amazon? not even close. ecommerce is price driven, there is no
customer loyalty online. cloud computing, 100s providers are offering cheaper
services already. its a surprise AMZN is still surviving.

~~~
ericd
No customer loyalty? Have you ever met anyone who uses Prime? I and many
others I know go straight there and will pay a premium to make sure it comes
from Amazon, because I know if something goes wrong, it won't be a pain in my
ass. This industry is consolidating because there's a great option that is
essentially a no-brainer in almost every way.

~~~
rdl
I mainly buy from Amazon, but largely as a "default fail-through" option for
random goods (and books/kindle of course).

I'd probably buy camera gear from B&H preferentially if they added a few
features to their buying process (tracking all my equipment whether bought
there or elsewhere, checking compatibility, maintenance, etc.). I'd buy
computer equipment, car accessories, etc. from other vertical vendors who do
the same thing (and generally do buy from Tirerack for that purpose)

There's loyalty to Amazon, but it's not absolute. I could start a new retailer
in a given niche today and probably defeat Amazon in that niche.

~~~
ericd
Yeah, I just haven't put the effort into scoping out exceptional vertical
vendors with the exception of electronics, so Amazon gets a very large
percentage of my purchases, and I'd imagine that most people are the same way
- buy from niche retailers in the things they understand well and buy a lot
of, otherwise, Amazon.

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tshtf
AWS is contributing significantly to the revenue numbers:

 _"Other" revenue, which largely consists of AWS, had annual sales of $2.52
billion, up from $1.58 billion in 2011. "Other" sales were $820 billion in the
fourth quarter, said Amazon._

[http://www.zdnet.com/amazons-q4-falls-short-of-estimates-
out...](http://www.zdnet.com/amazons-q4-falls-short-of-estimates-outlook-
misses-too-7000010513/)

~~~
btucker
They must mean $820 _Million_. Either that, or Amazon has a side business
selling cocaine.

~~~
khuey
The size of the global cocaine market is generally estimated to be in the high
tens of billions.

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tedunangst
10% jump is misleading. amzn dropped $8 in like the last second of trading.
It's up more like 6%. (Or back to exactly where it started yesterday morning.
:))

~~~
chucknelson
I think the point is that the stock went up at all, which is ridiculous
considering their latest quarter and total year.

~~~
corresation
But the point is that the stock didn't actually go up. It recovered a small
amount of the drop. Few quarterlies are really completely surprising, and if a
bad quarter were priced in, a not-as-bad quarter suddenly looks rosey.

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brennenHN
I love amazon and think they're probably a good investment, but it is really
funny to see the different reactions to this vs. Apple.

~~~
Symmetry
People who bought Amazon stock thought they were getting a company who was
going to grow aggressively by offering low prices. People who bought Apple
thought they were getting a company that was going to make huge profits which
would then be re-invested in technology that would rule the world. Low profits
aren't a problem for the Amazon plan, only the Apple one.

~~~
freerobby
Low profits are absolutely a problem for Amazon's plan. Profits != margins.
Being in a low margin business means you need to make up the difference in
volume.

And volume actually hurts you if your margins are in the red. ;)

~~~
snambi
Agree with you on this. AMZN was having a free ride on "no-tax" internet
purchases for a long time. Now, many states are charging tax for online
purchases.

Suppose you buy $1000 TV on AMZN, we used to save ~ $85 on tax alone. This was
main reason AMZN was doing better in the past. Now, why would someone buy a TV
on AMZN, rather buy it locally on a store.

This reduced their volume. AMZN has become a low-margin low-volume business.

~~~
chii
but being on the internet, what tax rate would it be if i purchased from
another country that has no sales tax?

I think taxing sales is the wrong thing to do - you must tax the entity
recieving the money. So if amazon decides that the US is too high a tax rate,
they can move their HQ to the caymen islands, and pay effectively no sales
tax. This should lead to optimal tax rates across the board hopefully, whilest
lowering prices.

~~~
snambi
it is the customer who the sales tax. Lets say I buy a $1000 tv on amazon. I
used to get the TV for $1000 with free-shipping. Now the same TV will cost
$1080 with free shipping.

For buying expensive things amazon was a great place, because the buyer was
not paying the sales tax. Now, they have to pay the sales tax, so there is no
advantage of buying from amazon.

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jrabone
I'm doing my bit (for the UK business). Ordered a new TV, A/V amplifier and
Bluray player, plus cables, mounts and sundries. It is no surprise at all that
the traditional high street retailers are having a hard time - Prime is
convenient, the range of goods is there, and the returns process Just Works -
prices are almost irrelevant within an epsilon.

~~~
mitchty
I forget what the UK amazon has for its prime equivalent, but after getting
Prime in the US and the Amazon credit card for points, Amazon basically owns
me and my buying habits.

It is somewhat scary to be honest how accurate their recommendations are now
that I've input information. People talk about Facebook, but Amazon has way
more information on actual purchases from me. Whatever, don't care much, they
do a good job and returns are painless.

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jyap
This part is funny.

First Quarter 2013 Guidance "Operating income (loss) is expected to be between
$(285) million and $65 million, compared to $192 million in the prior year
period."

So they're not even projecting profits for the future (except the range of
$0-65 million).

I kind of get the game that Jeff is playing which is the $0 balance sheet but
straddling that line is a dangerous business. With just under $3 billion in
cash, any shift in the needle competition wise and you're screwed for a few
quarters... I guess you could raise prices at that point?

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Osmium
I shop Amazon these days because I know no one else will be selling cheaper,
because everyone else is looking to make a profit. Great for the consumer but
I'm not sure what it'll mean for the retail industry as a whole when, in a
decade's time, there's no one else left.

~~~
hyperbovine
Fewer malls? Oh, the horror...

~~~
pnathan
It's not the malls that pose meaningful problems: it's the niche stores that
help bind a community together.

~~~
hyperbovine
I'm sure those exist... it's just that that statement means nothing to me, or
to most other people who live in a large city (i.e., the majority of
Americans).

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jcdavis
I believe most of the optimism from that quarter came from the improving
margins, which something AMZN hasn't always done a good job with.

~~~
chucknelson
If that optimism kept the stock flat, maybe that would be reasonable, but a
jump in the price considering they missed basically every goal for the quarter
seems irrational. Of course, "it's the market", and so on...

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smackfu
Just remember that if the price is irrational, only a sucker bets that it will
"correct" to a more rational price.

~~~
khuey
"Markets can remain irrational longer than you can remain solvent."

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ComputerGuru
I wish I could invest in AWS apart from AMZN.

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jgalt212
on a PE basis, AMZN is the most expensive large cap stock on planet Earth.

