Amazon Earnings Collapse. Grand Tour Costing More Than Expected?!

Adrian Ip
Posted Oct 28, 2016
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Amazon (NASDAQ: AMZN) is an interesting company. To me, Bezos is one of the canniest business people to arise from the .com era and to top it all off, he’s not just a business guy, in many ways he’s a product CEO, just that his product is a platform rather than a physical device.

Bezos has historically been able to carry investors along with his vision for the company. It’s pretty obviously the case that Amazon has diversified ridiculously since starting as an online book seller, now doing business in everything from cloud computing through to android tablets, smart devices, delivery drones, videogame streaming and engine provision, even becoming a carrier logistics and grocery delivery company. These are just a few of the more obvious areas that the little bookseller that could has grown into over the years.

A lot of traditional (and even some disruptor tech startups) lack Bezos’ ability to continuously take on (or even create new) markets in which his company has little to no experience.

Amazon itself has been looked on as an oddity of the markets in that a single man has managed to convince a sceptical industry to go along with whatever hare-brained scheme he wanted to try out next. The general theme is that as long as the company is remaining vaguely profitable, then at some point the Bezos land grab into any industry which takes his fancy is fine because at such time as the company slows down or stops with its continuous spending and diversifying into new areas, the existing lines of business will combine to be so ridiculously profitable that it’ll all have been worth it to have a stake in such a global behemoth.

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Amazon (NASDAQ: AMZN) Earnings Miss By Huge Margin

So to the news of the day. Amazon (NASDAQ: AMZN) posted earnings per share of 52 cents on the back of $32.7 billion dollars in revenue. As it stands, analysts were expecting 78 cents per share from similar revenue, so somewhere in there, costs are massively higher than expected.

The CFO mentioned during the conference call that spending had increased on video content and new warehouses, so of course it’s likely that some of that is going into Messrs Clarkson, Hammond and May’s pockets but this is just a symptom of the culture with which Bezos leads his company.

The Long Game

Bezos is no stranger to overinvestment. What is remarkable however, is the fact that despite doing this for basically as long as Amazon has been around, the growth shown from the company’s investments is continually impressive. It’s just that many in the investment community wish the company would retrench a bit and take some damn profits for once.

The thing is, if you have a leader like Bezos who seemingly has a touch and an eye for turning new lines of business into revenue generating dynamos, why would you want to put a stop to that? As such, Amazon (NASDAQ: AMZN) still enjoys a ridiculous P/E (price to earnings ratio), reflecting heavy investor confidence in the long term strategy of the company and Bezos’ ability to deliver return on investment, regardless of which arena he turns his eye to.

Sure, Amazon’s share price today has taken a hit and is currently down about 4%, but it’s still up 14% in the last 90 days and up 62% in the last 180.

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Ultimately, the question investors should be asking themselves is:

Do you still trust in Bezos’ ability to turn investment into new successful businesses? If so, you’re probably going to want to buy in again while the rest of the market takes a breather and pummels the share price a bit.

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