What’s wrong with Amazon? Here it is, the most self-explanatory and ridiculously clear chart that simply says it all:
Black Line: Endlessly soaring, totally out-of-whack, no-holds-barred, damn-the-torpedoes-full-steam-ahead operating expenses designed to demolish competitors that have their hands cuffed behind their backs by the requirement that they watch their expenses and keep them in line with revenues so that they can make a profit long-term and stay in business and make investors happy.
Green Line: Strongly rising revenues…. Alas, they’re not rising as fast as expenses, not nearly as fast. For every dollar spent, Amazon is getting less revenues as time goes on. Amazon’s spending model is becoming more wasteful, in terms of its impact on revenues. This is a business model for self-destruction, as normal businesses tend to find out because investors will sooner or later pull the plug. But apparently not Amazon investors. Amazon is directly plugged into the Wall Street hype machine, and investors can’t seem to unplug it.
Red Line: All of which translates into terrible operating income (or losses), year after year after year. This quarter’s loss was the worst in 14 years. It was ten times worse than last year. And there is no turnaround in sight.
— WSJ News Graphics (@WSJGraphics) October 24, 2014
Blue Line: But investors close their eyes and hold their noses and buy the shares anyway, and the stock soared. Until February. Plugged into the above mentioned Wall Street Hype machine, it has become – and has always been, except for a brief period after the 2000 crash when AMZN was trading in the single digits – completely independent of Amazon’s loss-plagued reality.
Thursday in after-hour trading, Amazon got crushed and traded down 12% for part of the time. Then the Wall Street hype machine started picking up steam, and on Friday it was down “only” 8.3%.
But here’s the thing: AMZN was a leading indicator of total investor exasperation when it started to crash in December 1999, three months ahead of the rest of the Nasdaq. Now, with today’s plunge, it’s down 30% from its February high. Read…. Amazon, the Leading Indicator?