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There is only one company that can miss EPS estimates by nearly 72 percent and have its stock go down by only 2.5 percent. If you guessed Amazon (AMZN), you are correct. The reason, because revenue still beat estimates by just over 2 percent, and it when comes to Amazon making a profit, it just isn’t their thing. For Amazon, it is all about investing in the future and driving prices lower, pushing the competition out of the market.
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Amazon By The Numbers -Big Miss In EPS
Revenue in the quarter rose by almost 25 percent to $37.955 billion year-over-year, while operating expenses increased 28 percent to $37.327 billion. Technology and Content costs grew by 43 percent to $5.529 billion. The fantastic piece, Amazon generate operating income of just $628 million, or 1.6 percent operating margin. Amazon aggressively increased spending during the second quarter.
Spend
It is almost as if they stop spending every so often just to show investors how much they could make if they choose. But just when you least expect it, they start spending like crazy again. Net income figures in the past illustrated this best, the chart doesn’t include the latest data, but you can get an idea on the subject.
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It certainly isn’t because the company has not been able to grow revenue over the years, that seems to this point never to be a problem. That curve looks exponential, doesn’t it?
Sell-Side Analyst: You Gotta Feel Bad
Imagine trying to be a poor sell-side analyst and figuring out what your estimates for next quarter should be. Probably looks a little like below -whoops! Take ’em down! Analyst estimates for the third quarter fell by 96 percent today to $0.04 cents from $1.12. So much for Amazon making money, until they decide they want to.
AMZN EPS Estimates for Current Quarter data by YCharts
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Starbucks
Amazon is probably the only company that can get away with such a bad miss and not have its stock get punished. Just look at what happened to Starbucks (SBUX) after the company had reduced guidance and analyst took down full-year estimates by 2 percent to $2.06, while reporting in-line EPS and revenue that missed by only 1.6 percent, with a 5 percent US same store sale comp. Unlock Deeper Insights with Exclusive Member-Only Video Content on The Market Chronicles YouTube Channel – Just $34.99/Month
That is what makes a market though, and that is why there is just never a dull moment when it comes to investing.
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Disclaimer
Michael Kramer and the Clients of Mott Capital owns shares of Starbucks.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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