The market reacted rather badly to Amazon’s results last night. If after-hours trading, expect a double-digit decline in their share price today.
At the top line, Amazon is storming. Revenues were up 44% YOY (to $10.9b) in Q3. But profit fell far short of estimates. Margins fell from an already slim 2% to just 0.7%. Indeed Amazon warned that Q4 might well record a loss.
This is all down to Amazon going for growth/market share rather than profits. In particular Amazon are prepared to sell its Kindle range – and this probably includes the Fire too – at a loss. On top of that Amazon is investing heavily to physical distribution centres – 17 new ones recently. Indeed another 3 in the UK creating thousands of new jobs.
I recently had to give a retrospective. Back in 1999 Amazon was an internet darling. Its share price had soared from $1.5 in 1998 to over $100 by 2000. When the bubble burst, many of the other ‘darlings’ disappeared. Indeed Amazon was severely affected too. Its share price plunged to $8 by 2002. But, since then, Amazon has prospered by going for growth and market share. Amazon closed at $227 last night.
Amazon is now an integral part of my life – as I’m sure it is to many other readers. I have nothing but admiration for their online services. I think the Fire is the only reasonable iPad competitor right now. They have also ridden the cloud wave well. And that’s before you look at the core retailing business.
Sometimes it is right to ‘invest’ for the future rather than just concentrate on profits today.