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Amazon's Profit Plunges 73%
- chuinard 15y agoInteresting but no one likes a paywall.
- mcphilip 15y agoTrue, but the article can still be viewed via the old 'first click free' technique of googling the article title and navigating to the page from the search results.
- nvictor 15y ago:O where were you when i needed that trick?
- pash 15y agoHere's a link that takes you to the full article: http://www.google.com/url?sa=t&rct=j&q=Amazon%2527s%2BProfit%2BPlunges%2B73%2525%2B&source=newssearch&cd=1&ved=0CCgQqQIwAA&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052970204644504576653520195533138.html&ei=xTKnTrvxMaSQiAKxh8WYDQ&usg=AFQjCNH5wgPxj4cgt3X9dgMXsRmVICo6mw&sig2=_WzDGtne-sWNTzt49k9O0A http://www.google.com/url?sa=t&rct=j&q=Amazon%2527s%...
- chuinard 15y agoThanks, never knew that.
- mikeryan 15y agoProfit's are such a volatile metric. Amazon's been spending like crazy in the last few months on producing new Kindle products - most of which are being sold as a loss leader in an effort to push book sales. Note that Amazon's overall Revenues are up 44% Less sensational, more nuts and bolts article http://www.marketwatch.com/story/amazoncom-announces-third-quarter-sales-up-44-to-1088-billion-introduced-four-new-kindle-devices-for-the-holidays-2011-10-25 http://www.marketwatch.com/story/amazoncom-announces-third-q...
- icebraining 15y agoExactly. The drop is an investment and was expected.
- philjr 15y agoIn addition to massive hiring
- megablast 15y agoOn the other hand, revenues can mean nothing as well, since profits are what count, and huge revenues do not always translate, and could be a sign of a spending problem.
- gujk 15y agoIt can be hard to tease out from the fancy accounting, but marginal profit (that is presumably sustainable) should be distinguished from new investment (which can be stopped if needed) and not just added together to get a profit number. That said, the buck should eventually stop at Free Cash Flow to prove shareholder value, which is then paid as dividend or invested sensibly.
- secretasiandan 15y agoThat's not an article, that's a press release. Source is Business Wire https://en.wikipedia.org/wiki/Business_Wire https://en.wikipedia.org/wiki/Business_Wire "Business Wire is a company that disseminates full-text news releases from thousands of companies and organizations worldwide to news media, financial markets, disclosure systems, investors, information web sites, databases and other audiences" Does the press have an incentive to talk about the plunge in profits? Yes Does the company itself have an incentive to spin things by touting increased revenues? Yes
- bostonpete 15y agoI don't think you needed to provide that link/quote. It's got "PRESS RELEASE" printed right there at the top of the article.
- pg 15y agoI wonder if analysts have learned yet not to dismiss apparently crazy moves by Jeff Bezos.
- DigitalBison 15y agoThey'll probably never learn, but Jeff doesn't care: http://www.geekwire.com/2011/amazons-bezos-innovation http://www.geekwire.com/2011/amazons-bezos-innovation
- deleted 15y ago[deleted]
- aik 15y agoThat's great, thanks for sharing. "Very importantly, we are willing to be misunderstood for long periods of time.... I believe if you don’t have that set of things in your corporate culture, then you can’t do large-scale invention. You can do incremental invention, which is critically important for any company. But it is very difficult — if you are not willing to be misunderstood. People will misunderstand you."
- hyperbovine 15y agoIf they had they would probably be off running successful companies of their own instead of analyzing.
- rbranson 15y agoI'm sure the employees and shareholders in the know are taking it with stride -- in 6 months they'll look back and laugh.
- nobody3141 15y agoCrazy moves like "heavy spending on warehouses, data centers and digital-content offerings" An online store buying stock and building infrastructure !!!!! Crazy , they should be borrowing money and paying themselves bonuses before going bust - that's what Wall St wants
- nestlequ1k 15y agoSeems Amazon is taking the long view, and reinvesting their revenues. The opportunity for them is huge. Wall street doesnt care and would rather see quarterly profits. Good buying opportunity if you're interested in watching them take over everything in the next 5 years.
- beedogs 15y agoGod, investors are idiotic. Amazon spends money to upgrade its infrastructure, stock price plunges 12 percent. Rational!
- jrockway 15y agoThey should do more for less, like magically store all 8 billion items they have in stock in the back of my car or something. Warehouses housing wares. How extravagant. Where's the innovation. (And to answer my sarcastic comment, the innovation is "order from your suppliers and have them ship directly to the customer, then you don't need warehouses". But the reason people pay Amazon's prices is because the item shows up at their house the same day they buy it, which means that 1990s mail-order model doesn't work anymore. Investors shouldn't be allowed to invest until they've purchased at least one product from Amazon.)
- awj 15y ago> Investors shouldn't be allowed to invest until they've purchased at least one product from Amazon. Seriously. My wife gets Amazon Prime for free through school. Within the first month I was looking for the best opportunity to buy stock. The service is quite literally amazing, and handing it out free to students is just damn genius. That's just one small thing on top of all the other things they do really well at.
- Game_Ender 15y agoI will second this. The free student prime has moved purchase of Amazon Prime from the "it seems cool but not worth category" to "must have" for me. You get things that you would normally have to run all over town to get with minimal effort. It's a huge time saver.
- vidarh 15y agoI've found myself ordering tiny stuff like a single pack of caffeine pills (we're talking 24 pills here, not exactly bulk buying) rather than walking 10 minutes to the nearest pharmacy... It's scary.
- dkokelley 15y agoTo restate the obvious, this is a case of reinvesting in the company's future growth. Net profits (distributable to shareholders) are diminished when a company reinvests, so yes, "profits" are down. However, a more meaningful metric is net sales - cost of goods sold. Amazon had to make a choice of what to do with their meaningful profits (what's sold - what it cost to create, sell, and support it). They could give it to shareholders, reinvest it in future growth, hand out bonuses, or burn it. All of those activities (except dividends) will lower their net profit on the income statement. The market is a fickle beast. Amazon will do fine, but given the company's history, I pity those who bet against it.
- cellis 15y agoI think the most important metric is return on equity. Profit is not really a consideration on Wall Street.
- polymatter 15y agoSpending on day-to-day expenses is termed revenue expenditure. This shows up in the income statement and affects profits. Spending on future investment is termed capital expenditure. This is not shown on the income statement and does not affect profits. (It's on the balance sheet instead) Eg. Buying a new warehouse does not decrease profits (but it will of course affect your cash). Blue-sky R&D is also recorded as an asset (and depreciated as normal). At least, that's what I was taught as a trainee accountant. Though I've learnt in practice that things are reclassified for tax purposes. Lower profits mean lower tax after all.
- gujk 15y agoBut depreciation is an expense, yes? So Amazon gets to average their investments for a 7-year rolling window or whatever, not postpone them indefinitely. Unless there is a way to claim that the software/IP has some resale value remotely approaching its cost to build?
- polymatter 15y agotrue, depreciation is an expense but one that accountants can fiddle with. I am only a trainee accountant and UK accounts are different from US accounts in ways I am not familiar, so don't take this as legal advice or anything. For start though, the deprecation policy itself can be changed. So as long as there is a note in the accounts giving some justification, I can say "I am not depreciating these assets". This is a crude way to manipulate depreciation and generally any competent auditor would flag it. Buying a new warehouse for example you generally wouldn't depreciate at all (usually holding it at cost and revaluing it every so often). So apportion all costs relating to buying the warehouse (including cost of machinery in the warehouse, connecting it to your IT network, legal and admin work) as a one line item Fixed Asset: Warehouse, and you just avoided all depreciation. (It will still be shown on the accounts, but doesn't touch the income statement.) Or you can decide to put it as a 5-year rolling investment as you put it and you're charging 20% depreciation. Or you can decide that this investment is not a one-off thing and is part of the core business (perhaps you're buying warehouses all the time). So then you can charge the whole lost as an expense. I suppose my point (back to the topic) is that Amazon's profits have gone down largely because of how Amazon's accountants have decided the best way of presenting their investment costs in their accounts. It makes sense to reduce book profits as that reduces your taxes. (Generally true, though I know in UK corporation tax calculations we don't take into account depreciation for the very reason that its manipulatable). A profit dive is especially fine if you have continued impressive revenue growth to point to and can claim that these investments are clearly worth it. Nobody is going to claim that Amazon is in serious trouble.
- kellyreid 15y agoTheir Q4 earnings don't matter because they are transitioning to a much different business model... quarter-to-quarter analysts don't take that into account.
- deleted 15y ago[deleted]
- kijin 15y ago> Amazon also said it ended the third quarter with 51,300 employees, up from 31,200 in the same quarter last year. Amazon creates 20,000 jobs, and Wall Street responds with a 12% drop in stock price.
- deleted 15y ago[deleted]
- mark_l_watson 15y agoUh, they had a bad quarter but they were still profitable. It seems to me that Bezos is making long term investments.
- topbanana 15y agoCompany Invests in its Future, Investors Furious
- 0x12 15y agoIf your stock drops 12% when your profits drop 73% you're doing just fine. Anybody that thinks differently should short this stock. We'll talk in 24 months ;)
- away 15y agoIsn't the plunge in stocks due to the fact that the Kindle Fire has a very low profit margin? I don't think this article is correct with what the cause-and-effect is.