- After a couple of quarters of misses, analysts had sufficiently low expectations for this quarter.
- Operating margins -- although only 1.5% -- were ahead of expectations.
- People don't care about earnings year over year. They only care about how you did relative to expectations (assuming your guidance is healthy).
The bears can point to the drop in earnings and free cash flow over the past three years, but it hasn't mattered to the stock. Investors have been willing to give Bezos the benefit of the doubt because he's delivered big growth in the past when he's said he's investing in the business. So, this stock no longer works when there are meaningful cracks in the revenue story. When might that be? Analysts are expecting $63 billion in revenues for this year. They also see it rising to $80.8 billion next year. That's a 28.4% year-over-year growth rate in the top line. In this current quarter, Amazon grew total top-line sales by 33% compared to the prior year, so management's lofty goal seems doable on the surface. However, it could be close. Top-line growth has been slowing over time; we'll see what it is by next year. Top-line sales growth decelerated by 10.5% this quarter compared to the first quarter of 2011, from 38% to 34%. If that decline continues at the same pace -- a supposition that seems ambitious, as I'd expect it to be increasing its deceleration rate over time -- sales growth would be at 30.2% by the end of Q1 next year and 27% by Q1 of 2014. To me, it looks like the cracks in the top-line Amazon growth story could start to show by Q3 or Q4 of this year.