Amazon May Lose Money Over The Holidays

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Amazon (NASDAQ: AMZN) is expected to have a huge holiday quarter. However, based on recent history, including the holiday quarter from a year ago, the company could lose money at its industry leading e-commerce business. A positive net income for the fourth quarter 2017 may rely on its Amazon Web Services industry leading cloud business.

In the fourth quarter of 2016, Amazon had total revenue of $43.7 billion. Net income was a tiny $475 million. Amazon’s North American division had operating profits of $816 million on $26.3 billion in revenue. Amazon’s International results was an operating loss of $487 million on $14 billion in sales. In other words, between the two, Amazon’s e-commerce business had operating income of  $329 million, a remarkably small margin.

Amazon Web Services produced almost all of the operating income in the fourth quarter of 2016. The figure was $926 million on revenue of $3.5 billion

In its third quarter 2017 results, Amazon issued guidance which showed that its e-commerce operations could indeed lose money in Q4. Management said revenue for the fourth quarter would be between $56 billion and $60.5 billion. Operating income was forecast to be between $300 million and $1.65 billion. At the lower end of the operating income forecast, Amazon’s e-commerce business will almost certainly lose money, and AWS’s operating income will be necessary to drive a positive bottom line for the company as a whole

CEO and founder Jeff Bezos has once again convinced Wall St. that strong earnings are not necessary for Amazon to be a success. At is takes a larger and larger piece of total retain sales, particularly in North America, huge profits will eventually be the results. However, as revenue rises rapidly, there is still no evidence of that.

The evidence is that Bezos continues to be convincing has show up in Amazon’s share price once again. Its stock is up 55% this year to $1,169. Its market cap is $563 billion. Only Microsoft (NASDAQ: MSFT) at $660 billion and Apple (NASDAQ: AAPL) at $869 billion, are ahead of it.

Amazon’s e-commerce business may not post positive operating income in the fourth quarter, and once again Wall St may not care.