Amazon.com (AMZN) is set to report third-quarter earnings after the bell Thursday. And with AMZN stock down 23% so far this year, the company’s results will be closely scrutinized by Wall Street.
For years, the stock market has tolerated CEO Jeff Bezos’ “spend them into oblivion” mentality. Just a year ago, investors were actually applauding AMZN’s noble strategy of sacrificing short-term profits for long-term market share. Consider the mood leading up to Amazon’s Q3 results in 2013:
“The first rule of Amazon earnings is simple: They don’t matter.
Amazon stock investors couldn’t care less about the actual earnings figure that AMZN posts. This is evidenced by the fact that AMZN has missed expectations in three out of the last four quarters and posted a loss in two of them … and yet Amazon stock has still kept climbing, with a 35% run in the books for the past 12 months.”
Oh, what a difference a year can make.
Time to Stop Monkeying Around
While AMZN stock was sitting pretty just 12 months ago, Wall Street is getting impatient with the company’s ho-hum attitude towards its bottom line. Unfortunately, barring a miracle, Amazon.com won’t even break even this quarter. Analysts are expecting a loss of 74 cents per share — a far cry from the mere 9-cent loss Amazon posted in the same quarter a year ago.
AMZN has failed to beat earnings expectations in each of the last four quarters, so a beat on Thursday would likely be celebrated on Wall Street. Especially because an earnings beat likely would show that Amazon’s cartoonishly awful net margins are on the rise
But why are Amazon’s margins so miserable to begin with?
AMZN seeks to dominate the industries it enters and absorb market share and sales, all in the hopes of boosting margins later when the competition has been eliminated. While Borders and Circuit City aren’t around to testify, ask RadioShack (RSH) and Barnes & Noble (BKS) what it’s like to take on AMZN.
So investors will be expecting Amazon’s free-spending ways to reap some rewards: Wall Street is looking for $20.84 billion in sales in the third quarter, nearly 22% more than the $17.09 billion it hauled in throughout the same quarter a year ago.
Amazon.com is going to post a loss on Thursday. But with the holiday season nearly upon us, one question looms large: What will AMZN’s fourth-quarter guidance look like? Analysts are looking for EPS of 69 cents on $30.9 billion in revenue, so if Amazon’s outlook strays too far from those numbers, AMZN stock will take a beating.
But we’ll have to wait until after the bell on Thursday to see.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.