Is Amazon up a creek?

Lackluster earnings will linger as the company invests for the long term.

By Jonathan Berr Jul 27, 2012 11:46AM
Amazon logo copyright Emmanuel Dunand/AFP/Getty ImagesAmazon.com (AMZN) had a subpar quarter and sees more pain ahead for shareholders.

The Seattle company reported Thursday that net income in the last quarter plunged 96% to $7 million, or 1 cent a share, its steepest drop since 2002, according to Bloomberg News. Revenue rose 29% to $12.8 billion. The results lagged analysts' estimates of a 3-cent profit on revenue of $12.9 billion. 

To make matters worse, Amazon forecast a third-quarter loss of as much as $500 million -- compared with Wall Street's expectations of a $119.6 million gain -- while sales in the current quarter are estimated at $12.9 billion to $14.3 billion. Analysts expected revenue of $14.1 billion.

Shares of the largest e-tailer, which rebounded Friday after plunging after-hours Thursday following the earnings report, will continue to be under pressure for some time. First, as Bloomberg noted, CEO Jeff Bezos is investing for the long-run and plans to open 12 more fulfillment centers this year, in addition to the six it already owns. Bezos also is planning to spend more money improving the Kindle. There are also some tough economic headwinds. 

Weak consumer spending caused U.S. GDP growth to slow to 1.5% in the last quarter, which though not as bad as some feared, is still rather anemic. Consumer sentiment fell to its lowest level last week in two months. While this was expected, it is another worrisome sign about the fragility of the economy. If that pessimism lingers into the fourth quarter, that could mean trouble for Amazon and other retailers that make most of their profits during the holiday season.

Amazon may be down but it's far from out. Wall Street still has faith in the stock. Analysts have an average 52-week price target of $260.14 on the stock, about 12% higher than where it currently trades. The stock, however, isn't cheap, trading at a price-to-earnings ratio of 269.07, the highest it's been in five years.

For most investors, the risks associated with Amazon are greater than its rewards.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter@jdberr.
Tags: AMZN
0Comments

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.

117
117 rated 1
280
280 rated 2
478
478 rated 3
656
656 rated 4
650
650 rated 5
640
640 rated 6
647
647 rated 7
482
482 rated 8
277
277 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
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.