The Five Dumbest Things on Wall Street This Week

1. The Proof Is in the Pudding

Amazon.com (AMZN) is getting its just desserts.

Shares of the Seattle-based online commerce giant hit a three-year low Wednesday after second-quarter earnings plunged 58% from a year ago.

Big selloffs are nothing new for Amazon, which at the height of the Internet bubble once fetched a split-adjusted $113 a share. But the latest swoon shows Wall Street isn't buying CEO Jeff Bezos' growth strategy.

One sore point is the Amazon Prime promotion that gives users a year of free shipping after they pay a one-time fee of $79. Analysts believe Amazon Prime is crushing profit margins by boosting shipping costs.

But Bezos stoutly defends Amazon Prime. "We see an increase in sales from those Amazon Prime members," he said on Tuesday's post-close conference call, "and it deepens our relationship with those customers."

Deeper still is Bezos' rationale for Amazon's recent push into the low-margin grocery business. With the stock down 44% this year, Amazon holders aren't eager to take on Wal-Mart (WMT) on its home turf.

But Bezos touts Amazon's vast grocery selection and notes "extremely positive" consumer reaction, according to a transcript on seekingalpha.com.

"We don't just carry a few flavors of Jell-o," Bezos continues, hammering his point home. "We carry all 80."

Sweet dreams, Jeff.

Dumb-o-Meter score: 93. More clear reasoning: Amazon aims to find "elements that matter to customers that are durable in time, where we can build flywheels that we can continue to put energy into," Bezos explains on the call.

To view Colin Barr's interview about the Five Dumbest this week, please click here.