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Earnings Don’t Matter To Investors If You Are Amazon

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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.


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.
AMZN Chart

AMZN data by YCharts

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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?
AMZN Chart revenue

AMZN data by YCharts

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 Chart

AMZN EPS Estimates for Current Quarter data by YCharts

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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.
SBUX Chart Starbucks

SBUX data by YCharts

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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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.