Amazon investors stunned by size of projected loss

Jeff Macke Yahoo Finance

Amazon.com (AMZN) shares getting hammered today after last night's earnings report. While revenue was broadly in-line with expectations, profit missed the mark badly as Jeff Bezos continues to show no regard for profitability.

The details: Amazon reported a second quarter net loss of $126 million, or 27 cents per share, while the street expected a loss of around 15 cents a share. Operating expenses for the quarter came in at $19.36 billion.

Net sales were reported to be $19.34 billion, up 23% from 2013 second quarter’s figure of $15.7 billion. Revenue closely matched analyst expectations, and basically within the company’s sales guidance range of $18.1 billion and $19.8 billion.

Wait… What?!

It was a fairly normal quarter right up until the company suggested it would lose between $410 and $810 million in the current quarter. It’s one thing to not sweat profits but quite another to idly project a potential four-fifths of a billion loss with no real explanation. The instant the guidance was issued Amazon shares dropped a quick 5% more after-hours. Nothing that was said over the balance of the call lifted investors’ skepticism.

“A lot of the earlier expansions were in to similar businesses or digital versions of physical businesses but they’re getting so far afield now,” grouses Aaron Pressman in the attached video. “Phones is a very competitive business and it seems like their phone is going to do nothing. The cloud business was a very good business but there’s been huge price cutting.”

Investors have been giving Amazon a pass on profitability for as long as the company has been public. When Jeff Bezos filed to go public way back in 1997, he said right up front that he wouldn’t be running the company to make short term profits. “The Company believes that it will incur substantial operating losses for the foreseeable future, and that the rate at which such losses will be incurred will increase significant from current levels,” Bezos wrote in the SEC filing.

It may be the most honest statement ever written in a government filing. True to his word Bezos and Amazon have racked up losses and shareholders have largely forgiven them for doing so. Still, there’s a limit. The magnitude and vagary of the projected losses for the current quarter were a bridge too far as far as shareholders were concerned.

Last night was a nearly verbatim repeat of what Amazon said in 1997 but not even Bezos can get the benefit of the doubt when projecting a nearly billion loss without explaining where the money is going.

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