Sleeping like this [upside down hanging from the ceiling] will add 10 years to your life. I learned it from Keith Richards when I toured with the Stones. This may be the reason why Keith cannot be killed by conventional weapons.
-- Del Preston, Legendary Roadie
Yesterday, after the close, Amazon
(NASDAQ:AMZN) delivered its highly-anticipated fourth-quarter earnings report.
To sum it up in a nutshell, Amazon did achieve a better-than-expected operating margin, but on the negative side:
Earnings came in a $0.21 per share, $0.06 below expectations.
Revenue was $21.3 billion, missing the $22.3 billion consensus.
For Q1, operating income and revenues are expected to be well-below Wall Street forecasts.
Pretty stinky, right? I mean this is a company that as of midday yesterday was trading at 509 times earnings according to Bloomberg (or 3,218 times earnings according to Yahoo Finance...), vs. 10 for Apple
(NASDAQ:AAPL) and 23 for Google
This stock's gotta crash, right?
Well, let's go to the video tape to see the market reaction to Amazon's report. Here's 10-minute chart from 3:00 p.m. to 6:00 p.m. yesterday:
Amazon closed at $260.35 yesterday. As you can see, the stock immediately dipped on heavy volume to $249.50, before skyrocking up 16% to hit an after-hours high of $290.49.
CNBC's Herb Greenberg addressed the Amazon bounce with the following Tweet, which sums up the situation perfectly:
Greenberg's Tweet really does cut to the question on everyone's minds -- why is Amazon going up on a lousy quarter?
And furthermore, why is it trading at such a crazy premium valuation relative to more seemingly innovative companies like Apple and Google?
Here's the thing.
It's very easy to imagine Amazon at $1 trillion in revenues because it has a relatively predictable business with an obvious secular growth story.
More and more people are shopping online, and Amazon's obviously best of breed in ecommerce. It's a growth story that can logically go on for decades.
Meanwhile, look at the tumultuous history of the tech landscape.
In the 1990s, Dell
(NASDAQ:DELL) was absolutely killing it in terms of growth, Microsoft
(NASDAQ:MSFT) was the biggest bully on the block, and Apple was on the verge of going out of business.
Now, the PC industry's been turned upside down because of the iPad, and Microsoft is an underdog to Apple -- a company it actually rescued in 1997!
(See also: Why Microsoft Could Gain Market Share in a Post-PC World.)
There was a time when companies like Polaroid, Kodak, and Xerox
(NYSE:XRX) were world-class innovators with seemingly unlimited growth potential.
Or how about IBM
(NYSE:IBM)? It went from being a dominant superpower in the 1980s to a bloated mess in the early 1990s, before being resurrected in one of the greatest corporate turnarounds of all-time -- quite a roller coaster for what is now considered a "steady as she goes" type of profit machine.
And then there's Research In Motion
(NASDAQ:RIMM). Six months ago, the BlackBerry maker was left for dead on the side of the road. Today, people are pumped for BlackBerry 10's release -- a turn of events that was inconceivable in mid-2012. And the stock's up 166% off the lows.
We are in a bear market in certainty, which largely explains Apple's depressed valuation in the face of huge revenue growth and mobile-device dominance.
And what does Amazon bring? A dead-simple business model intensely focused on growing revenues into the stratosphere that can easily be extrapolated decades into the future. It's just plain easy to imagine an Amazon that in 2030 is 10 or 20 times the size it is today.
Of course, it doesn't hurt that Amazon has incredible customer service and truly visionary management that gives the middle finger to a Wall Street and mainstream media obsessed with quarter-to-quarter earnings results.
So yes, Amazon is just like Keith Richards. It can't be killed by earnings misses that are meaningless in the long run, the same way Keith can't be stopped by heroin or a fall out of a tree.
Position in AAPL
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