Amazon (AMZN) Misses on Earnings; Stock Falls 10% After-Hours

Amazon Inc. (AMZN) has just reported its fiscal Q3 (9/2014) financial results and they were depressing. For the e-commerce goliath, AMZN came short of Wall Street EPS and revenue expectations, causing the stock price to sink by upwards of -12%, or roughly -$37/share. AMZN reported EPS of -$0.95, while the Zacks Consensus Estimate was -$0.74, and revenues were $20.58 billion, while the Zacks Consensus Estimate called for $20.86 billion in revenues.

Many were expecting AMZN to miss, as it appears the company has been solely focused on its growth, and to be honest, Jeff Bezos, AMZN’s head honcho, does not seem too concerned with how investors see his company at this point in time.

AMZN has been making acquisitions and spending money like crazy, and while this surely ought to pay off at some point down the road, investors are losing interest in the heavily traded stock. Bezos’ acquisitions in Q3 included the video game streaming startup, Twitch, for a whopping $1 billion; however Bezos did not stop there.

His company invested in Local Register, a mobile card reader that aims to help AMZN compete with the likes of Square and Paypal. AMZN also launched Amazon Prime Fresh, the company’s delivery service, which expanded to New York. Other mergers and acquisitions include AMZN teaming up with MediaTek for new Fire HD Tablets which are designed for consumers who are looking for high-performance devices at an affordable price.

Bezos has recently been behind many controversial decisions, including a physical, brick-and-mortar store in NYC, which will open its doors to shoppers around the holiday season. . It will be the perfect opportunity if it comes to fruition as the holiday shopping season is obviously a key time for retailers.

There are also plans to open up more stores that will act more like small warehouses, if the Midtown Manhattan one fares well. The plan is to have same day delivery for New York through that mini-warehouse. Is it wise to go down the brick-and-mortar road? Many investors are looking at it with suspicion and many see it as defeating the purpose of being a digital store, which is AMZN’s uniqueness.

AMZN’s rapid expansion since its inception back in 1994 has brought it worldwide fame and success, but it is now threatened more than ever, with more companies jumping on the e-commerce bandwagon. We saw how the Chinese goliath Alibaba (BABA) stole the spotlight at the NYSE when it debuted last month. BABA has also been skyrocketing following Mayer’s delightful news to investors regarding Yahoo! Inc. (YHOO), after the windfall of cash the company acquired from BABA’s IPO.

AMZN’s distinguished success relied on the firm’s ability to deliver to customer anywhere in the world in a good range of time. AMZN needs to reinvent itself and innovate, however physical stores may not be the solution. Many argue that AMZN’s advantage was that it was solely an online megastore, and that a physical store would defeat the very purpose of AMZN. The following is a comparison of AMZN’s financials for the two previous quarters:

Round Up

For Q3, this quarter, AMZN reported operating loss of $544 million, and it also expects an operating loss for Q4 of $430-$570 million, not good news for investors. On the other hand, operating cash flow increased 15% y/y to $5.71 billion, and free cash flow increased to $1.08 billion.

AMZN anticipates net sales of between $27.30 - $30.30 billion, or a growth of between 7% and 18% for Q4. Net sales in the third quarter increased by 20%, to $20.58 billion, a vast improvement over the same quarter last year, when it was only $17.09 billion in net sales.

Amazon currently sports a Zacks Rank #3 (Hold), and it may be wise for investors to stay away from a company that is struggling with delivering positive earnings results. AMZN retains an average surprise of -43.77%, meaning it is risky for investors to jump into AMZN ahead of earnings conference calls. Below are important figures for the company:

AMZN has excellent growth potential; however Bezos might need a change of strategy if he is to save his company’s ailing stock which is under severe pressure following another dismal earnings report.
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