When a stock is valued at 72 times forward earnings, it is a pretty safe bet that investors are looking at a growth play. When the same stock has been publicly traded for nearly 17 years, investors might want to ask when the promised growth will arrive?
Amazon.com Inc. (NASDAQ: AMZN) has been this stock, and it still is this stock. The company’s founder and CEO has promoted a vision of real profitability by the end of this decade, if not a few years sooner, but the company continues to post tiny profits on minuscule margins and make big investments on things like grocery deliveries and streaming video.
After posting a profit of $0.23 a share on Thursday night on revenues of $19.4 billion, which was in line on profits and better than expected on revenues, shares have traded down nearly 10% Friday morning. That is nearly entirely due to guidance that calls for a loss between $55 million and $455 million in the current quarter. And that is way short of analysts’ prior expectations for earnings per share of $0.24.
ALSO READ: Amazon Continues with Almost Zero Margin in Earnings
The company also has been hit recently by about 20 states that have passed laws requiring that Amazon collect sales taxes. A recent study at Ohio State University found that sales tax collection caused Amazon’s customers to spend about 10% less per order and leads to a 2% gain in purchases at brick-and-mortar locations, as well as a gain of nearly 20% at competing online retailers.
Amazon has raised its Prime fee from $79 annually to $99 for new and renewing subscribers, but in exchange it is giving these subscribers more streaming video and other services that eat away at margins. A report at BGR suggests that the company is preparing for a summer launch of its own smartphone that will include a unique wireless data plan for Prime subscribers that takes advantage of AT&T’s Sponsored Data program. Under this plan, Amazon would pay for all or some of the subscriber’s data usage. That won’t be cheap.
Analysts have mainly reacted by cutting price targets but leaving Buy or Outperform ratings intact. Investors have been less encouraging. Shares are trading down about 9% just before noon on Friday, at $306.50 in a 52-week range of $245.75 to $408.06.
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