Amazon, the Leading Indicator?

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In December 1999, it started crashing, a leading indicator of total investor exasperation. Now it’s down 30% from its February high.

This shouldn’t surprise anyone, but by the way the stock plunged after Amazon announced its blistering third quarter loss, it seems plenty of people got caught with their pants down. The stock is now off 12% in after-hour trading as I’m writing this. But what the dickens were people expecting? That Amazon would make money, like normal mature retailers?

Heck no. That would be too uncool for Amazon. Amazon doesn’t need to make money.

Revenues rose 20% from a year ago to $20.6 billion, yet it lost $437 million. That’s about ten times what it lost in the quarter a year ago. It was the worst quarterly loss in over a decade. The financial year-to-date sinkhole is now $455 million.

But Amazon is no slouch. It finagled $205 million in income tax benefits, graciously provided for by hapless taxpayers. Its loss before income taxes is actually $634 million.

You have to read through four paragraphs of its press release, praising sundry metrics, before you get to the first mention of the word “loss.” If, exasperated by this much hype, you stop reading, you’d probably be better off.

And then there’s CEO Jeff Bezos holding forth on how they’re going to do this and that:

As we get ready for this upcoming holiday season, we are focused on making the customer experience easier and more stress-free than ever. In addition to our already low prices, we will offer more than 15,000 Lightning Deals with early access to select deals for Prime members, hundreds of millions of products across dozens of categories, curated gift lists like Holiday Toy List and Electronics Holiday Gift Guide, new features like….

Yada-yada-yada. It’s the same song and dance we’ve been hearing for years. How about explaining to exasperated shareholders how Amazon is going to make a net profit?

Well, after an eternal list of doodads, thingamajigs, and services that Amazon has already rolled out or will roll out, it finally gets to the part of how it is going to make a net profit.

Um, it’s not going to make a net profit.

It explains: “Operating income (loss) is expected to be between $(570) million and $430 million, compared to $510 million in fourth quarter 2013.”

Here’s the thing: Aside from being a range that extends all the way from Kabul to Seattle, even at the optimistic top end of making an operating profit of $430 million, Amazon would remain in its financial sinkhole for the year.

Its net loss so far this year is $455 million. And the Q4 net profit, if any, is going to be lower than the operating profit. So in all likelihood, 2014 is going to be another red-ink year. It barely made money in 2013 ($274 million, a rounding error for a company with $74.5 billion in revenues). It lost $39 million in 2012. It made $631 million in 2011. This isn’t exactly an improving trend.

Now don’t get me wrong. I’ve been a satisfied customer of Amazon for fifteen years or so. I also published two books – BIG LIKE and TESTOSTERONE PIT – using Amazon’s services, and I have no complaints about how that worked. Amazon does a lot of things very well, and some things better than anyone else out there. It also uses and abuses its increasing heft in the market place to stifle competition and create a monopoly. It’s not cool, but hey, all big companies strive to do that. A monopoly is the corporate wet dream.

But Amazon doesn’t give a hoot about its stockholders. Never has. To heck with them. It clearly has no intention of making money. And it doesn’t have to because shareholders are still buying the shares. Even today, though at a much lower price.

The stock is now changing hands at $275 a share, as I’m writing this, a 52-week low, and down almost 33% from its all-time high in January of $408. Maybe shareholders are finally waking up to reality. And then there are memories: Amazon started crashing in December 1999, three months before the rest of the Nasdaq did. It was a leading indicator of investor exasperation. It didn’t take all that long before Amazon was down 80%.

And why the heck did Daimler just now turn its supposedly strategic investment, and one of the hottest stocks, into cash? What does it know that we don’t? Read…. Daimler Closes Tesla Hedge, Dumps Shares, Grabs Cash, Runs

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  6 comments for “Amazon, the Leading Indicator?

  1. Ray
    Oct 23, 2014 at 4:42 pm

    Amazon is backed by some very, very deep pockets. In fact those who create the money. They will buy that market, like Google bought search. It is no surprise that any remotely successful business concept with potential will get centralized in a centralized money world.

    • Vespa P200E
      Oct 23, 2014 at 8:01 pm

      Sorry but I disagree.

      AMZN’s astronomical valuation is about to come back to earth as sales may be in amazonian billions but not when you lose money by the bundle with negative margin in last 3 qtrs even under non-GAAP. AMZN is not really tech company but in highly competitive retail space with decent growth thanks to, ahem, give away the products at a loss.

      Reminds me of Feb 2000 when the chumps rhetorically stated that the profits are for pussies or something.

  2. Adam
    Oct 23, 2014 at 8:51 pm

    It doesn’t make sense to me, that Amazon is losing money, because, though I KNOW that they’ve got overhead, their overhead relative to their sales has to be way smaller than store retail. And online shopping is where people shop now. (But then, I’m very dumb about business, so what I heck do I know.)

  3. NotSoSure
    Oct 23, 2014 at 8:52 pm

    One of the most tradable events ever (for the past 3 quarters). I put in some puts yesterday that expires next week. Will close them tomorrow at a profit. Thank you Amazon.

  4. Michael Gorback
    Oct 24, 2014 at 6:45 am

    It’s been astonishing to watch AMZN defy gravity for so many years. The “We’re building infrastructure” theme is looking not a little frayed around the edges.

    Perhaps the real strategy is a good old John Rockefeller move to starve out the competition.

    Whatever his strategy is I’m grateful to Mr Bezos for keeping prices so low while giving small businesses and new authors like Wolf an incredible opportunity to gain access to millions of potential customers. As a charity, AMZN works incredibly well.

  5. Mel
    Oct 24, 2014 at 7:11 am

    Well, for the whole truth we merge this with the Unilever story up above. Companies can’t satisfy their shareholders, they can’t satisfy their customers, who are also their employees, or their retired employees. Who’s left? Anybody? Anybody out there? Martians maybe.

    My other question is “Where have these analysts been since 1974?” The current situation has been building up for a long time. Of course, solving the wealth distribution problem will clear the way to facing the old Club of Rome Report: Limits to Growth, and having to figure out how we’ll continue to find wealth.

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