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Amazon's Great History of Bad Earnings Reports


Amazon tends to report underwhelming earnings, and long-term investors tend not to care.

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Yesterday after the close, (NASDAQ:AMZN) delivered a significant earnings miss and poor operating income guidance, raising the same old questions about its business strategy:

Is it overinvesting without a sufficient return?

Should it focus on boosting margins?

No and no.

The bull case for Amazon is not about the company sensibly managing its finances so it can hit Wall Street's quarterly earnings estimates.

It's all about about building a $1+ trillion revenue base over the next 20-30 years, and surpassing Wal-Mart (NYSE:WMT) as the world's largest retailer.

If investors assume that's on the way, they will in turn assume that the company has the ability to eventually turn the margin/earnings spigot.

As long as it can be assume that those margins come one day, that day does not have to be tomorrow.

In fact, it's probably beneficial for Amazon shareholders for margins to never go up, so long as revenues are growing nicely.

Rapidly increasingly margins could send a signal that Amazon is maturing, and that would kill valuation multiples.

Look at this stock chart:

Amazon is well off its highs, but it's doing fine for a company that has missed Wall Street's earnings estimates in six of the past nine quarters:

Click to enlarge

Like any high-octane momentum stock, Amazon's going to go from overvalued to undervalued to overvalued and back again

So tell me again why quarter-to-quarter earnings matter here?

Now what could take Amazon down?

Well, if we get a major NASDAQ (INDEXNASDAQ:.IXIC) collapse, that would be a problem. If the US economy went into a major recession, that too would hurt.

But this is a revenue story. If that top line shows major deceleration, it will be time to freak out.

If people stop signing up for Prime, it will be time to freak out.

For now, Amazon is fine.

Now excuse me. I have a banana guard to order.

Twitter: @MichaelComeau

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No positions in stocks mentioned.
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