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.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:

AMZNearningsJonathan Berr

< Back to Top Stocks

0Comments

DATA PROVIDERS

Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.

Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. 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 SIX Financial Information.

Japanese stock price data provided by Nomura Research Institute Ltd.; quotes delayed 20 minutes. Canadian fund data provided by CANNEX Financial Exchanges Ltd.

Feedback

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.

126	258	459	600	670	682	602	455	271	112
1	2	3	4	5	6	7	8	9	10

Top Picks

SYMBOL	NAME	RATING
ABT	Abbott Laboratories	10
AIG	American International Group Inc	10
ATVI	Activision Blizzard Inc	10
CA	CA Inc	10
CSCO	Cisco Systems Inc	10

LATEST POSTS

The good news: the market's stumble was modest

Try as the bears might, they couldn't break U.S. stocks. But investors still face frothy prices and considerable headwinds.

FIDELITY VIEWPOINTS

VIDEO ON MSN MONEY

Feedback

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.

Bing Search

Top Stocks