3 ms·

Just proof to me how screwed up Wall St is. Apple makes a profit and sells a record number of iPhones and iPads and its stock gets hammered whereas Amazon loses

by ron_m 14y ago

Just proof to me how screwed up Wall St is. Apple makes a profit and sells a record number of iPhones and iPads and its stock gets hammered whereas Amazon loses an amazing 45 percent and gets a slap on the wrist from Wall Street.

smackfu 14y ago
See, I think it's odd that some people seem to think stocks should go up on good news and down on bad news, regardless of whether people expected the news.
mdkess 14y ago
That is not at all how any of this works. First, expected growth is built in to the value of a stock at any time. If the market expected Apple's sales to double, for example, and it happens, the stock will not skyrocket when Apple announces "record results" - because that doubling is build into the price of the stock. If instead their sales go up 1.5x - which is still healthy - the stock will fall, because it missed the market's expectations. The price was set at the expectation that prices would double. So what happened with Apple? While I don't claim to be an investor (and don't take any of this as advice), people cut price targets after it looked like Apple's sales had plateaued. The general consensus seemed to be that from the latest report, Apple's ability to beat earnings per share targets (ie. how much money it makes for each share that it has issued) is diminished, so the price has readjusted. Amazon didn't lose 45%. Amazon's net income fell, from $147 million to $97 million. Net income is what most people refer to as profits. Amazon's revenue is up 22% from last year to just shy of $50 billion, and it has a ton of assets, around $32 billion. So how did profits fall? They spent more money building data centers and warehouses - in the same way that Apple's profits would fall if they spent more money building Apple Stores. It's an indication that the business is healthy, not unhealthy. Operating margin (ie. your return on sales, what portion of revenue turned into income) also increased, by quite a bit from 20% to 24%, which is very healthy. Apple and Amazon are both great companies, but to be clear, I'm not recommending either of these stocks - if you're buying a single ticker, you're gambling. If you want to learn about this stuff, I'd recommend as an very readable introduction the book A Random Walk Down Wall Street.

by ron_m 14y ago

smackfu 14y ago

See, I think it's odd that some people seem to think stocks should go up on good news and down on bad news, regardless of whether people expected the news.

mdkess 14y ago

That is not at all how any of this works. First, expected growth is built in to the value of a stock at any time. If the market expected Apple's sales to double, for example, and it happens, the stock will not skyrocket when Apple announces "record results" - because that doubling is build into the price of the stock. If instead their sales go up 1.5x - which is still healthy - the stock will fall, because it missed the market's expectations. The price was set at the expectation that prices would double. So what happened with Apple? While I don't claim to be an investor (and don't take any of this as advice), people cut price targets after it looked like Apple's sales had plateaued. The general consensus seemed to be that from the latest report, Apple's ability to beat earnings per share targets (ie. how much money it makes for each share that it has issued) is diminished, so the price has readjusted. Amazon didn't lose 45%. Amazon's net income fell, from $147 million to $97 million. Net income is what most people refer to as profits. Amazon's revenue is up 22% from last year to just shy of $50 billion, and it has a ton of assets, around $32 billion. So how did profits fall? They spent more money building data centers and warehouses - in the same way that Apple's profits would fall if they spent more money building Apple Stores. It's an indication that the business is healthy, not unhealthy. Operating margin (ie. your return on sales, what portion of revenue turned into income) also increased, by quite a bit from 20% to 24%, which is very healthy. Apple and Amazon are both great companies, but to be clear, I'm not recommending either of these stocks - if you're buying a single ticker, you're gambling. If you want to learn about this stuff, I'd recommend as an very readable introduction the book A Random Walk Down Wall Street.