Breakout

Amazon Earnings Disappoint, Shares Move Higher

Jeff Macke
Breakout

As predicted in yesterday's segment called The Trade, Amazon (AMZN) reported worse than expected quarterly results in regards to EPS. For good measure the company announced they would post weaker than expected results for the current quarter, in large part because it is increasing its spending on new initiatives. As was also predicted yesterday, Amazon didn't care about EPS one bit.

The company reported a 2-cent loss versus expectations for a 5-cent gain. Revenues were OK ex-currency but hardly robust. Cash flow was solid.

"It was the best third quarter since inception but they continued to invest in infrastructure at the expense of profit," says Simon Baker of Baker Avenue Asset Management, in the attached video. "At some point they've got to start showing some profits. That' where the question is."

Related: Amazon Slips on Surprise; Starbucks Percolates; Samsung Woes; Game Over for Zynga?

In the conference call, CFO Thomas Szkutak didn't so much evade questions about specifics as flat-out refuse to address them.

How is the new grocery initiative doing in LA? "It’s very early there, we’re still in the trial period, it's good customer experience and we like what we see so far, but it’s very, very early. And so, it’s something that we’ll continue to work on and both from a customer experience and from an economic standpoint," answered Szkutak.

How about international business? Specifically China because that looked soft. Szkutak was ready for the question. "You should expect us to be in investment mode for some time, but it’s a very sizable segment, very interesting long-term growth opportunity and we’ll continue to work on making that better for customers and for investors over time."

Related: What Amazon needs to keep going strong

And so on. Analysts would ask questions about weak net results and Szkutak would come back with answers to the effect of, "We've got a huge opportunity there and we're going to pursue it by spending money to create the best possible customer experience."

While shares have recovered since the opening bell, Wall Street sent the stock price lower pre-market, rightfully concerned that Amazon is determined to never stop investing until they are the dominant retailer in every available market. That would seem to be a ludicrous stance but for three factors:

1) Amazon has never once told anyone they cared about EPS

2) The company has the cash to pay for the initiatives

3) Amazon started as a great bookseller. They now sell everything and offer the best customer experience of any retailer in the world, bar none.

How should investors treat the shares? If you believe that stocks are all about net earnings per share in the here and now there's no justification for owning shares. If you're partial to companies with a history of execution on a customer level you have to be long.

In terms of incremental information we didn't learn anything from last night that we didn't know yesterday morning.

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