A few years ago, analysts had to add numbers from dozens of retail companies to see how Christmas went. Now they just wait on the earnings from Amazon.com, Inc. (NASDAQ:AMZN), which came out after the market closed on Feb. 2. Unfortunately, Christmas wasn’t as rosy as hoped, and AMZN stock is down about 4% in Thursday’s after-market trade as a result.
Amazon’s final numbers were somewhat mixed. AMZN beat estimates on the earnings front, bringing in $1.54 per share — better than the consensus mark of $1.40, and the company’s seventh straight quarter of profit.
But Amazon was light on revenues, at $43.74 billion versus expectations of $44.84 billion. That still was a big jump from the $35.75 billion in revs last year, but not enough to please investors or experts. That caused AMZN stock to drop 4% within minutes.
Bad news for most, though some — including Blue Chip Growth editor Louis Navellier — were hoping to buy Amazon stock on the dip.
CEO Jeff Bezos emphasized the variety of Amazon Prime services in his release, mentioning new offerings in gaming, storage, music and its Prime Now same-day shopping services. The company’s studio launched hit shows like The Grand Tour and Man in the High Castle, while the movie Manchester by the Sea drew Oscar nominations but will debut on Prime within a few months.
Our James Brumley was expecting fireworks after earnings, but most options traders were not making big bets either way. Most recently, I took some money off the table on Amazon, which as I noted was becoming a huge piece of my retirement savings.
The biggest news from the analyst community was a super-bull call from Bill Miller, chairman of LMM Investments, claiming the value of AMZN stock could double again in three years — making it more valuable than Apple Inc. (NASDAQ:AAPL). He also stating that Amazon now has higher gross margins than Wal-Mart Stores Inc. (NYSE:WMT), which regularly sells nearly $120 billion of merchandise each quarter — not just at Christmas.
The big turn in Amazon stock started when the company started breaking out numbers from Amazon Web Services, its cloud services unit, after the first quarter of 2015. Since then, the company has more than doubled, as the unit has been growing at 50% per year and proving it can book one-fourth of that revenue as operating profit, even when accounting for stock options given its top employees.
In the third quarter, for instance, AWS earned $861 million on revenues of $3.231 billion. Yes, that’s more than the whole company earned. Amazon still loses money regularly on its international expansion, where it now brings in nearly one-third of its revenue. For the fourth quarter, AWS brought in revenue of $3.54 billion, which was seen as disappointing.
Why Buy AMZN Stock Now?
It’s the expectation of huge growth on a massive scale that have made Amazon the fourth-largest company by market capitalization in the U.S. It recently passed Berkshire Hathaway Inc. (NYSE:BRK.B), whose revenues regularly run 50% better than Amazon’s Christmas expectations.
Shares dropped 5.1% the day after the third quarter missed expectations oOct. 27, and you could have gotten Amazon for $719 per share two weeks later, on Nov. 14. But since then the stock has been on fire, and closed before earnings near $840 per share.
Buyers keep coming for Amazon because every quarter, it seems to do something spectacular.
This quarter, for instance, it delivered a new credit card offering 5% all Amazon purchases to Prime members. It announced a new air hub near Cincinnati, sinking shares of United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX). Its Alexa personal assistant dominated the Consumer Electronics Show, as our Brad Moon reported.
All this has made AMZN stock a must-have for a growing number of small investors, who race in whenever the stock stumbles.
Just like it did this afternoon.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.