Bullish Amazon Investors Overlook Bottom Line Concerns
Amazon (NASDAQ: AMZN) is one of the few stocks that can post losses and still record significant gains on the stock market. Just after its third quarter earnings released October 24, its share price tracked upward despite the tech bigwig posting a loss of $41 million, or $0.09 a share. Although Amazon’s third quarter loss was reduced compared with 2012’s third quarter loss of $247 million, or $0.60 a share, the fact that the bigwig is still treading in the red is alarming. However, for investors this is visibly not the case. Investors were more jovial about the 24 percent year-on-year uptick in Amazon’s revenue, which came in at $17.09 billion, compared with $13.81 billion in the year-ago quarter. Amazon’s top line, rather than bottom line, takes precedence.
Why Is This So?
Year to date, Amazon has gained close to 40 percent on the stock market. The company, which has a market cap of $166 billion, continues to attract growth investors looking to make capital gains on the stock market. Indeed, these investors have made more capital gains than any dividend bonanza can make up for, raising the question, are earnings that important for Amazon investors? After all, the stock only seems to be gaining and rising with no end in sight.
Admittedly, these spurts of growth present irresistible plays for investors. However, the Seattle e-Commerce behemoth’s losses fail to present any soft landing in the event that this growth bubble meets the sharp end of reality.
Amazon Has Been Doing This For A Long Time
Interestingly, there is no one time that Amazon has been able to consistently maintain its head above the breakeven point. It has always been in and out (most of the time in) of losses. However, all through, its sales have grown consistently. Amazon’s paradox is something that has baffled the market for so long that investors have learned to deal with it. From a stock market point of view, Amazon openly looks operationally flawed. However, it still makes money. Isn’t this what investors signed on for after all?
Other highlights in the third quarter earnings include a 48 percent year-on-year uptick in operating cash flow which came in at $4.98 billion for the trailing twelve months. During the quarter Amazon was able to leverage its bulging coffers to strengthen its growth pillars and keep its revenue streams flowing.
Arsenal Of Growth Plays Ready To Be Deployed At A Moment’s Notice
A wider outlook on Amazon reveals that despite its bottom line woes, it has everything well thought out. In the third quarter it released the third generation Kindle Fire HDX which, in addition to many new features, has a Mayday button. The button delivers live tech support 24 hours a day for the entire year, including holidays, and has an average response time of 11 seconds.
In addition to the Kindle, Amazon is still following through on its plans to build physical distribution centers. It recently announced a new distribution center in South East Baltimore that will open in 2014 and employ 1000 people. This announcement comes after it announced another distribution center for Windsor.
The distribution centers fall in line with Amazon’s plan to enhance same day deliveries for its new categories such as arts, groceries and flowers.
Disclosure: The author has no position in the stocks mentioned in this article, and does not intend to initiate any position in the next 48 hours.
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