The Digital Skeptic: Annual Reports Show Year to Forget for Info-Age Giants

NEW YORK ( TheStreet) -- If the yearly annual statements from Google ( GOOG), Facebook ( FB) and Amazon ( AMZN) are any indication, this will be a year to forget.

American equities are wondering in an unfamiliar hill. A real -- if slight -- rally is afoot, based as much as anything on optimistic annual sales and earnings from the three companies, each of which posted double-digit revenue growth for the full year. Shell-shocked investors then poked their noses out of their Groundhog Day holes and realized the Dow might actually be comfortable with 14,000.

I was stunned.

You should know, 10-K annual report data is what us investor geezers live for. Aside from full-year performance being what matters, there's none of the 10-Q quarterly earnings bogosity. Instead, the 519-year-old financial liturgy of presenting results in comparable tabular form is continued so, as Father Luca Pacioli first did in 1494, investors can soberly compare the balance sheets -- the income statements; statements of cash flow came much later -- for any company.

That gives a sense if those numbers match the larger story the company is trying to tell.

So huddle up and let's take a throwback walking tour of the annual income statements for our "Big Information Three."

Google gone wild
It's Google's economy right? So let's start with this Mountain View, Calif., Web services giant. The company was not shy in bragging about revenues gone wild for a stunning 36% increase in sales -- to a world-beating $50.1 billion.

"Not a bad achievement in just a decade and a half," was CEO's Larry Page's scrubbed, investor relations-ready line.

Even more remarkable for an information age company, there was more real earnings, rather than less, in 2012. Bottom-line net income rose a healthy 10.3%, to $10.7 billion for the 2012 period. Investors ignored the 43% increase in total costs and expenses for the year and off the stock went for say an 8 percentish bull ride.

Digital-age mission accomplished, right?

Well, except when you compare that with the annual income statement story told by the other members of our information-age trio.

Facebook books a four-bagger of expenses
Young Mr. Mark Zuckerberg, during the same 2012 period, saw his company grow revenues by a Google-esque roughly 37.1%, to $5.1 billion. But net income -- you know, the money left after you're done spending what's needed to make that net income -- could not keep up the information age party. It collapsed from an even $1 billion in 2011 to just $53 million. That's something like 94% drop. The culprit? Operating expenses that exploded by 132% for the year.

Investors -- at least for awhile; one never knows with this stock -- again overlooked these issues, mostly due to improved subscriber numbers and better-than-expected mobile ad rates. And Facebook stock saw fresh life.

"In 2012, we connected over a billion people and became a mobile company," was Zuckerberg's investor cheerleading line.

Amazon's $60 billion expense line
Things get frankly bizarre when we bake in Amazon's 2012 annual income statement performance to the narrative. I realize Amazon is an "Internet retailer" that sells and ships things. And some argue it's ridiculous to compare it to Facebook and Google, which sell "Internet advertising and services." You make the call.

No question, there was a Google and Facebook-like jump in net sales: 27.1% jump, to $61.1 billion for 2012. But here's the thing: Bottom line net income was not merely Facebook ugly; with Amazon it was not there at all. Apparently, Jeff Bezos has decided it's not scary enough to spend $47.2 billion out of the $48.1 billion he made in 2011 to wind up with just $631 million in net income for 2011.

Oh no. In 2012 he had to spend $60.4 billion to lose(!) $39 million. A nonprofit foundation -- which is basically what this company is now -- would lose its tax-free status with such performance.

But is not phased. "We're now seeing the transition we've been expecting," was Bezos' cryptic advice for investors.

The no-margin Web
No big data algo or highly paid analyst is needed. We can all do the math ourselves: Between the three, investors are looking at about $436 billion in market cap, or about the GDP of Argentina, every last dollar of which is under pressure from expenses raising faster than sales.

Rally or not, Internet or not, Information Age or not, in the context of history, to me this is not sustainable.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.