This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Amazon Continues to Answer Critics, But...

NEW YORK ( TheStreet) -- I asked recently if e-commerce giant Amazon (AMZN - Get Report) can keep defying gravity as it pushes further into territories dominated by tech giants Apple (AAPL - Get Report) and Google (GOOG - Get Report). The premise continues to be the same -- how long will investors pay such incredible premiums for revenue growth in absence of meaningful profits? Following Amazon's third quarter earnings report, this question was answered -- albeit not entirely.

Growth Not the Problem, Profit Uncertainty Remains

There is no denying that Amazon has been an incredible story. The level of growth the company consistently demonstrates is nothing short of remarkable -- particularly considering its size. But with a price-to-earnings ratio of over 300, Amazon needs to execute flawlessly for the stock to make sense. This quarter was anything but perfect.

For the third quarter, Amazon did what everyone expected it to do in terms of revenue, as sales soared 27% to $13.81 billion -- beating its own estimates of $12.89 billion. Remarkably, over the past five quarters, revenue has increased by an average of 34%. The company's challenge however remains profit growth, which again fell short of analysts' estimates.

Although Amazon rarely issues earnings projections, it reported a net loss of 60 cents per share -- much lower than analysts' estimates of 8 cents per share. Disappointingly, during the third quarter, the company swung to a loss of $274 million after the prior three quarters yielded profits. On the other hand, by reporting an operating loss of (only) $28 million, the company did exceed its own guidance for operating income of a loss between $50 million and $350 million.

For the coming quarter, things are not expected to immediately turn around. Amazon expects revenue to arrive between $20.25 billion and $22.75 billion. As noted, the company does not provided EPS guidance. However, consensus estimates are at 50 cents per share, which has come down from 68 cents over the past three months.

Moving Forward

During the announcement, Jeff Bezos, Amazon's founder and CEO said:

Our approach is to work hard to charge less. Sell devices near breakeven and you can pack a lot of sophisticated hardware into a very low price point. And our approach is working.

It's hard to disagree with Bezos on his assessment of the company's model -- especially, seeing what Amazon has been able to accomplish over the past decade. The company is without question one of the best success stories of this era. Likewise, Bezos ranks up there with Steve Jobs as one of the top visionary CEOs of all time. But the stock is expensive. This has been my biggest concern over the past couple of years.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AMZN $430.92 0.00%
AAPL $130.54 0.00%
GOOG $533.99 0.00%
MSFT $47.23 0.00%
FB $80.29 0.00%

Markets

DOW 18,040.37 +29.69 0.16%
S&P 500 2,111.73 +4.34 0.21%
NASDAQ 5,082.9290 +12.9030 0.25%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs