Amazon.com Inc. (NASDAQ: AMZN) has a serious wake-up call in front of it. The 10% or so drop in the stock is one thing, but frankly that could even be worse if the love affair that the public has with Jeff Bezos starts to wear off. Amazon cannot keep losing money or have negative margins and keep “trading at over 150 times next year’s earnings estimates” forever. After all, it is not as if Amazon is a new company — it launched in 1995 and came public in 1997.
What is happening at Amazon is that the stock market is finally wising up to the notion that you just can’t run a business like a personal nonprofit forever. Keep in mind that Amazon has a market cap of over $134 billion, even after the drop. This company has displaced many industries — go try to find a book store or one that sells CDs now. Amazon is happy to keep losing money in media as well, which can become a beast in the pit that requires feeding endlessly.
24/7 Wall St.’s take on earnings is that Bezos wants to run Amazon like a nonprofit charity. That would be fine if he funded it himself, but Bezos is doing this with shareholder money. Having negative margins is no way to run a successful business.
If you go back to when we asked when shareholders would get tired of Bezos Walmarting so many industries without making any profit. On July 26, the day before that piece, the Amazon share price was $324.01 — after almost a 10% drop then too! We noted:
24/7 Wall St. has seen scenario this with critical eyes over the past year or so. It is one thing to invest for the future, something that Team Bezos has done relentlessly. This sounds great, but how many businesses should one company be allowed to disrupt by losing money and having in some cases what looks like a negative margin? After all, aren’t businesses under the tax code supposed to be formed to make a profit?
So, you don’t have to just take our word for it that the story is souring here. Analysts should have already capitulated before, but they are all too engrossed with the Bezos personality and effort. Maybe analysts are getting more than their fair share of deliveries at a loss under their Amazon prime subscriptions. Here are some of the analyst calls seen on Friday morning:
- Benchmark lowered its price target $350 from $460.
- Bank of America Merrill Lynch maintains its Buy rating but lowered its price objective to $340 from $390, calling it a lost year but not a lost cause.
- Cowen downgraded it to Market Perform and lowered its price target to $325 from $390.
- Canaccord Genuity lowered its price target to $310 from $340.
- Credit Suisse lowered its target to $395 from $422.
- Janney downgraded Amazon to Neutral from Buy.
- Oppenheimer lowered its target to $372 from $410.
- RBC Capital Markets lowered its price target to $420 from $435.
- Topeka lowered its price target to 350 from $395.
We will stick by the accusation: If Amazon doesn’t start to show that it can make money in each of its operations without disrupting existing business segments, the IRS might want to consider making Amazon change its .com to .org.
Lastly, don’t just trust us, and don’t just trust analyst calls that are still holding on to bad hopes. The market is showing just how bad of a stinker this report and current operating model is. Amazon shares were down over 9% at $284.43 in the premarket, and shares hit a new 52-week low of $284.00 Friday morning. Hitting a 52-week low is just not acceptable behavior at this time in the market.
Even if Amazon recovers, severe damage has been done here. Bezos really should consider his next big gamble very carefully.