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.