Is Amazon Stock a Perfect Storm or Perfect Opportunity?
Since its second-quarter earnings miss, Amazon (NASDAQ:AMZN) stock has fallen over 10% in a perfect storm of bad publicity.
Shares that traded at almost $2,000 each before the second quarter numbers came out opened Aug. 5 below $1,800 and are expected to fall further.
Earnings of $2.625 billion, $5.22 per share fully diluted, on revenue of $63.4 billion, were below Zacks Consensus Estimate of $5.29 per share. Revenue from Amazon Web Services (AWS) also came in $120 million light, at $8.38 billion.
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The stock fell despite the fact total revenue was up 20% year-over-year, up from 16% in the first quarter. Operating cash flow of $9.1 billion, which Amazon considers its key metric, was up 22% from $7.4 billion a year earlier.
AMZN Stock’s Perfect Storm
The last month was highlighted by a full-throated Trump Administration attack on the company.
The Federal Trade Commission is investigating last year’s agreement to directly sell Apple (NASDAQ:AAPL) products, over its impact on re-sellers. The Administration is also looking to halt the Pentagon’s move to build its own Amazon cloud, matching one the CIA bought years ago.
AWS is being blamed for the hack of Capital One (NYSE:COF), even though it was a Capital One firewall that broke.
CEO and co-founder Jeff Bezos added to the post-earnings selling pressure, dumping $1.8 billion of stock after the numbers came out. It was his first big sale since October, and his largest to date. Bezos has said he needs $1 billion per year to fund his Blue Origin rocket venture. He and his ex-wife have pledged $2 billion to help homeless families and create pre-schools.
When bad news hits, of course, other news piles in. The head of Amazon’s studio is taking a sabbatical. CVS Health (NYSE:CVS) is launching an Amazon-like membership plan called CarePass. eBay (NASDAQ:EBAY) is suing over an alleged plot to steal high-volume sellers off its platform.
Amazon Stock’s Perfect Opportunity
But Amazon isn’t slowing down. If anything, it’s accelerating.
It’s planning another run at Walmart (NYSE:WMT) in fresh food. That “disappointing” cloud quarter masks a 33% market share that’s holding steady against growing competition. The company is looking to buy a stake in India’s largest brick-and-mortar retailer.
Amazon’s streaming service is broadening its offerings, with plenty of cash to take on Netflix (NASDAQ:NFLX), AT&T (NYSE:T), Comcast (NASDAQ:CMCSA) and Walt Disney (NYSE:DIS), along with a $10 per month price that, with free shipping, looks free.
Amazon is looking to cut down on packaging waste and is finally ready to start delivering packages with drones. It has also launched one-day shipping.
Amazon also has defenses against Trump criticism. Contrary to Treasury Secretary Steven Mnuchin’s charge that it has “destroyed retail,” over half of what Amazon sells comes from third parties, mostly small businesses. Despite its large size Amazon still represents less than 5% of the retail market.
The Bottom Line on AMZN Stock
Amazon stock is not for everyone.
If you need your investments to pay you in cash, Amazon has no dividend and is very unlikely to add one any time soon.
But of 55 analysts following the stock none has a sell rating on it. The last holdout, Allen Gillespie of FinTrust, finally moved into the “hold” camp last week.
Amazon only dominates in e-commerce where, as previously noted, over half the revenue is on behalf of third parties. It has one-third of the cloud market, a small piece of entertainment, and rivals like UPS (NYSE:UPS) are both spending big and profiting from that investment.
Amazon stock remains the best long-term holding out there. If you have a long-term investment horizon and don’t own any let the market panic, then look for an entry point.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in CVS, AMZN and AAPL.
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