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Amazon.com Earnings Prove Little

Maybe it was because the stock has been pounded for so long, or because the quarterly report so easily beat street expectations. Maybe it was because of erroneous headlines such as this one on Salon.com: "Amazon.com earnings soar." Maybe it was all of those things.

Whatever the reason for the market's after-hours embrace of Amazon.com's quarterly results, released late Tuesday afternoon, the momentum continued into Wednesday's trading session, with AMZN shares up 14% to $33.75 even as the Nasdaq was falling nearly 1.4% in the late morning.

Don't expect the excitement to last, however. Sure, the online retail giant reported Q3 revenues of $637.9 million, a healthy 79% increase over last year's third quarter sales. (These are the soaring "earnings" referred to in Salon.com.)

But getting people to hand over lots of money has never been a problem with Amazon.com. Among Internet companies, only Cisco Systems and America Online generate more revenues.

The real issue for AMZN remains the bottom line, and though many numbers in the Q3 report are encouraging - gross profits and sales per customer were up, while the company's U.S. books, music and DVD/video operations, responsible for 63% of total sales, posted a pro forma operating profit - the red ink still flows fast.

Amazon.com's net loss of $89.5 million (excluding non-cash charges), or 25 cents per share, may have smashed Wall Street loss estimates of 33 cents per share, but including all costs, net loss was $240.5 million, or 68 cents per share. That's more than the year-ago quarterly net loss of $197.1 million, or 59 cents per share, though it's less than Q2's net loss of $317 million, or 91 cents per share.

Further, there's no reason to believe AMZN won't backslide. It did in Q2, when net loss increased after decreasing in the first quarter.

With no evidence of sustained movement toward profitability, and a large chasm standing between it and mere break-even, it's virtually impossible to predict when - and if - Amazon.com will move into the black. These days, those are not the ingredients for sustaining upward ticker movement.



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