Media Moves

Coverage: Amazon shares drop after earnings

October 24, 2014

Posted by Liz Hester

Investors are tired of waiting for the online retailing giant Amazon to actually make money. It’s hard to believe with all the stuff the company sells that it isn’t profitable, but investments continue to be a drag and investors are bailing.

Ryan Mac has this story for Forbes: dramatically increased sales in its third quarter but still managed to miss wide of the mark on loss estimates for its third quarter, sending the company’s stock down more than 10% in after-hours trading on Thursday.

That drop is just the latest sign that investors may be fed up with the company’s lax approach to its bottom line. While Amazon launched a slew of new electronics gadgets and completed its second-largest acquisition ever with the purchase of video game live-streaming company Twitch this year, losses continued to widen.

For the three months ending on Sept. 30, the Seattle-based company reported a third quarter net loss of $437 million, or 95 cents per share, compared to a net loss of $41 million, or nine cents a share, in the same period last year. A group of 40 analysts polled by Yahoo expected an average loss of 74 cents a share.

Net sales were reported to be $20.58 billion, up 20% from revenues of 17.09 billion in the third quarter of 2013. That figure came in slightly lower that the average estimate from analysts, who anticipated net revenue to be $20.84 billion, and fell in line with the company’s own forecasted sales range of $19.7 billion to $21.5 billion.

Writing for The Wall Street Journal, George Stahl reported that new business was taking up much of Amazon’s focus and money:

The bottom-line losses reflect Amazon’s heavy investments in new businesses and services that some investors worry are stretching the Seattle company too thin. This year, it has released an array of new offerings including a hand-held grocery-ordering device, unlimited e-book rental and streaming services, and its first set-top box and smartphone.

The company also has been in a fight with publisher Hachette Book Group over e-book pricing, leading it to halt preorders of some titles and delay delivery of others.

For the fourth quarter, Amazon projected sales to grow between 7% and 18%, ending up between $27.3 billion and $30.3 billion. Analysts, on average, were projecting sales to increase 21% to $30.89 billion, according to Thomson Reuters.

The company also provided a wide range for operating income in the fourth quarter, saying the final number can land anywhere between $430 million and a loss of $570 million. A year ago, its operating income was $510 million.

But there may be some good news for the year since the fourth quarter is typically the busiest for Amazon, Spencer Soper wrote for Bloomberg:

The fourth quarter is typically Amazon’s most lucrative, given an influx of shoppers who buy gifts for the holidays. Amazon is ramping up to be ready, saying earlier this month that it plans to hire 80,000 seasonal workers in the U.S. to help process orders, up from 70,000 last year. In the U.K., Amazon has said it will hire 13,000 workers for seasonal roles this year.

“As we get ready for this upcoming holiday season, we are focused on making the customer experience easier and more stress-free than ever,” Bezos said in the statement.

Meanwhile, the company’s spending continues. In August, Amazon said it plans to buy video-game service Twitch Interactive Inc. for $970 million, one of its largest acquisitions to date, as it works to add more entertainment services.

Last month, Amazon introduced five new Kindle tablet models, including the $99 Kindle Fire HD, as it continues to seek more media consuming customers. The online company will open temporary pop-up stores in select cities such as San Francisco and Sacramento through the holidays to give shoppers a chance to see and try its electronics.

Amazon also secured a $2 billion credit line with Bank of America Corp. last month, giving it flexibility to continue investments in categories such as same-day grocery delivery, even if they aren’t immediately profitable.

And CNBC’s Everett Rosenfeld pointed out that investors typically dump stock after Amazon reports earnings:

Amazon shares have often fallen after its earnings announcements. In fact, the stock has sunk no less than 9.6 percent in the day after earnings over the past three quarters.

Analysts had expected to report a quarterly loss of 74 cents per share on $20.84 billion in revenue, according to a consensus estimate from Thomson Reuters. It was the seventh time in nine quarters that the company had missed expectations.

“This loss is a hard one to swallow. This is going to make it tough to justify that we’re investing in the future, when the loss is this big,” said Lou Basenese, founder of Disruptive Tech Research.

Amazon’s guidance for the fourth quarter was also below expectations. The firm said that it expected sales of between $27.3 billion and $30.3 billion, while Wall Street was looking for $30.39 billion. The low end of the company’s sales guidance for the fourth quarter is more than $2 billion below analysts’ most pessimistic estimate.

The lower forecast could be problematic for some investors and why they are selling. It seems nearly impossible for a company with sales in the billions of dollars to not make money. Amazon has been touting a growth and investment story, but at some point it is going to have to show a bottom line that’s healthy in order to keep its status with stockholders.

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