Will Wall Street ever sour on Amazon?
The e-retail giant continues to blow off the whole making-a-profit thing
On Thursday, Amazon posted a loss of $7 million, or 2 cents a share, for the second quarter, off a giant $15.73 billion in revenue — a 22 percent increase from the same quarter last year.
This is nothing new. Amazon is used to posting razor-thin profits or losses each quarter, while plowing enormous amounts of revenue into building and evolving the company, mixing risky investments with more dependable ones. And Wall Street loves it, seeing in it a strategy to dominate industries so thoroughly that the competition withers and dies (see: Borders, Best Buy).
This quarter, Amazon spent hundreds of millions on licensing agreements to build a video library like Netflix's, part of an effort to keep pace as video, books, and other media — which in total account for 28 percent of Amazon's sales — shift from physical to digital forms. Meanwhile, it also continues to invest in original content, and is planning the release of a phone. All together, Amazon spent $1.59 billion on technology and content this quarter, 47 percent more than last quarter.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
And that's just one category. The online retailer also spent like nuts on warehouses as part of its push toward offering same-day delivery — a possible death sentence for both online and brick-and-mortar competitors — as well as grocery services.
It's easy to see why there's not much left over to kick back to shareholders.
So far, they don't mind at all. Investors have pumped the stock up some 21 percent this year already, and after Amazon released its latest report, the price barely fluttered.
"On some level, I think some people are buying the stock because they're hoping for that investment cycle to begin to reduce," an analyst told The New York Times. "If they pull back on spending, you're going to see that operating margin tick up."
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Still, the stock price is hardly a steal. One way to judge a company's value is to look at the price-to-earnings ratio, which measures its stock price against its monthly earnings. Amazon's price is about 132 times earnings over the next 12 months. Compare that to Google, which is priced at just 15 times earnings.
And look at poor Apple, which literally made more than 7 billion times more money than Amazon last quarter, only to run up against investor skepticism once again.
However, not everyone is just sitting back, waiting for profits to start rolling in. "The clock is ticking for Amazon to show that it can sell its goods and services while making a profit that might start to justify its market capitalization," an analyst told Bloomberg.
And Tom Cheredar at Venture Beat wants more information:
But does CEO Jeff Bezos feel the any pressure to change? Businessweek's Brad Stone doesn't think so:
Create an account with the same email registered to your subscription to unlock access.
Carmel Lobello is the business editor at TheWeek.com. Previously, she was an editor at DeathandTaxesMag.com.
-
4 tips for coping with election anxiety and stress
The Week Recommends Election news is hard to circumvent. But navigating the politically charged season does not have to be stressful.
By Theara Coleman, The Week US Published
-
Detailed map of fly's brain holds clues to human mind
Speed Read This remarkable fruit fly brain analysis will aid in future human brain research
By Peter Weber, The Week US Published
-
Giant: 'stylishly crafted' Roald Dahl play is 'spectacularly good'
The Week Recommends Mark Rosenblatt's 'fearless' debut examines the character of the controversial children's author
By The Week UK Published