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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.
Michael Comeau    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Yesterday after the close, Amazon.com (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

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Amazon's Great History of Bad Earnings Reports
Amazon tends to report underwhelming earnings, and long-term investors tend not to care.
Michael Comeau    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Yesterday after the close, Amazon.com (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

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
More From Michael Comeau
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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.
Michael Comeau    

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Yesterday after the close, Amazon.com (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

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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