Amazon kindles investor outrage

The prospect of an operating loss for the current quarter was enough to cause investors to throw up their hands in disgust and walk away from the stock.

By The Fiscal Times Feb 1, 2012 5:40PM
Image: young woman reading from Kindle (© Reggie Casagrande/Photographer)By Suzanne McGee, The Fiscal Times
 
Investors have a zero-tolerance policy for companies that disappoint these days, and that's why they spent much of Wednesday unloading shares of Amazon (AMZN) after the company's lackluster fourth-quarter earnings report late Tuesday. (The shares opened below $174 after closing the previous session above $194.)

It’s not so much that the company’s results fell dramatically short of expectations -- they didn't -- but that the contrast between higher revenues and sliding profits appeared more dramatic in light of Amazon’s somewhat bearish projections for the first quarter. Set against the company's rather lofty valuation -- it still trades at more than 90 times trailing 12-month earnings -- the prospect of an operating loss for the current quarter was enough to cause investors to throw up their hands in disgust and walk away from the stock.
 
It’s hard to blame them. Amazon has always been a big spender, investing in everything from the Kindle and the Kindle Fire to new ways to convince shoppers to spend more time -- and money -- on its site. But that growth in revenue often has come at the expense of growth in profits, as happened once again in the fourth quarter, when it reported a 57% slide in earnings, despite higher revenue.

In the following video, one analyst says Amazon's customer service and loyalty moves may be hurting its bottom line.

Post continues below.
The Kindle Fire appears to be another loss leader (like Amazon Prime, the subscription program through which Amazon customers can get free two-day shipping) that the company believes will generate more in content sales than it loses. That may be a correct assumption, but impatient investors may not want to sit around waiting to find out. Especially in light of a surge in operating expenses, and a decline in operating margins over year-earlier levels.
 
Amazon is not Apple (AAPL). It has less cash on hand (to put it mildly) and is a retailer, not a manufacturer of some of the most coveted electronic goods on the planet. And with that premium valuation, investors want more insight into the company's earnings than simply a comment by its chief financial officer, Tom Szkutak, that Amazon is "very encouraged" by the rate Kindle users are snapping up content. The company last month said shoppers had snapped up "well over 1 million Kindle devices per week" throughout the month of December, but it added no new information about sales of its Android-based tablet during its call with analysts Tuesday.
 
True, there are some encouraging signs for Jeff Bezos and Co. Amazon is faring better than many bricks-and-mortar retailers, which struggled throughout the fourth quarter. Most of them will eke out modest single-digit gains in same-store sales, while Amazon's growth in revenues remains relatively robust: Excluding currency effects, its net sales surged 35%. That’s an impressive result.
 
Amazon has frustrated and disappointed short-term investors before by investing in long-term success rather than maximizing quarter-to-quarter results, so the battering it took Wednesday is nothing new -- and the stock has proven that investors will forgive the earnings blips as they chase big-time growth.

But the bottom line is that even if you're a die-hard Kindle aficionado, or order everything from cat food and garden tools to designer shoes from Amazon, this may not be the time to buy the company's stock. Amazon may well post respectable results going forward, but investors increasingly are going to be demanding more than that if the stock is to retain its pricey valuation. Until the dust settles -- and until the price makes the stock look like something you’d find in a bargain basement rather than a designer boutique at Sak's -- this is a stock you'll want to avoid.

Related Links:
Amazon’s Profits Plunge 57%
Facebook: Where It Ranks in IPO History
The Two Questions on Apple Investors' Minds


9Comments
Feb 1, 2012 6:06PM
avatar
Not sure why they keep calling people who buy and sell stocks on a daily basis "investors".  They are traders.  Investors hold stocks long term for company growth, not the whims of the market.  Amazon doesn't care what the traders do.
Feb 1, 2012 6:04PM
avatar
I think it's great that amazon takes a long-term view of their business and invests in areas that will increase their client base and revenue streams going forward.  This obsessive "what have you done for me today?" thinking that doesn't extend from one quarter to the next is precisely what's wrong with most U.S. corporations these days.  If you don't invest for the future, you won't have one!
Feb 1, 2012 6:16PM
avatar
So we have a company with exceptional customer service,more customer loyalty than just about any other co. and the shareholders are balking. Well when Amazon listens to Wall st. and starts caring  more about Wall st. and not their customers ,good by Amazon. Right now thing that makes Amazon what it is is their customer service.
Feb 1, 2012 5:57PM
avatar
I am holding my AMZN for now. Think they will recover since it is still the place everyone turns to first for goods and I have enjoyed using my Kindle for several years.
Feb 1, 2012 6:07PM
avatar
Amazon Prime is the one of the best things I've invested in. $79 year: unlimited streaming movies on my tv, computer, and phone,  and faster shipping on everything I order.  The movies alone more than make up for the membership!   Stock prices dropping? Yeah, everywhere!
Feb 1, 2012 7:31PM
avatar
I think Amazon made a very smart move selling the kindles so cheaply over the holiday season because the books will sell once all the recipients get used to reading on them.  I've read about 12 books since Christmas.  When the library is out of interesting books, I'm going to be buying them from Amazon.  Investors should hold on to their stock and wait for the long-range plan to come to fruition.  Now I am a person who reads so much that I have to purchase used books and use the library to afford my habit; however, I have noticed that the library just isn't buying enough current titles to go around.  There are long wait lists.  If I can combine the electronic lending program of the library with the purchase of new books from Amazon, I can have the latest titles and spend about the same amount of money.  Who is the winner Here?  I think it is Amazon and the people who have the foresight to hold the stock.
Feb 1, 2012 7:05PM
avatar
These "investors" remind me of lemmings gathered at the edge of a cliff, when one slips and falls....
Feb 1, 2012 6:58PM
avatar
Confused How can there be a recovery if it' has never really been up there in real sense? Like all of wall street overpriced ponzi pyramid its all over hyped.Don't tell anyone
Feb 2, 2012 8:09AM
avatar
When all the others go negative it's time to stay positive. Hold AMZN.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

118
118 rated 1
270
270 rated 2
472
472 rated 3
714
714 rated 4
624
624 rated 5
608
608 rated 6
623
623 rated 7
445
445 rated 8
319
319 rated 9
125
125 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
BIDUBAIDU Inc10
BMYBRISTOL-MYERS SQUIBB CO.10
CELGCELGENE CORP10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.