Amazon as a Charitable Organization

Following the dismal 4th quarter earnings announcements by Amazon, detailed below, Amazon’s share price shot up by more than 10%.

  • Q4 revenue of $21.27 billion missed expectations of $22.23 billion
  • Q1 EPS of $0.21 missed expectations of $0.27;
  • The firm guided top-line lower, seeing Q1 sales of $15-$16 billion, below the estimate of $16.5 billion
  • The firm guided operating income much lower, seeing Q1 op income of ($285)-$65 Million on expectations of $261.4 MM
  • The firm said the its physical books sales had the lowest growth in 17 years
  • Total employees grew by 7,000 in the quarter and 32,200 Y/Y to a record 88,400
  • Worldwide net sales Y/Y growth was the slowest in years at 23%, down from 30% in Q3 and 34% a year ago
  • And, last and certainly least, LTM Net Income is now officially negative, or ($49) meaning as of this moment the firm with the idiotically high PE has an even more idiotic N/M PE.

The question is why? Matthew Yglesias has a great thought: Amazon is a charitable organization. To wit:

The company’s shares are down a bit today, but the company’s stock is taking a much less catastrophic plunge in already-meager profits than Apple, whose stock plunged simply because its Q4 profits increased at an unexpectedly slow rate. That’s because Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers. The shareholders put up the equity, and instead of owning a claim on a steady stream of fat profits, they get a claim on a mighty engine of consumer surplus. Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon.

It’s a truly remarkable American success story. But if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.

Sometimes (often) the markets are a fool’s game.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s