Amazon Reports First Quarterly Loss in 4 Years

http://www.nytimes.com/2012/10/26/technology/amazon-reports-its-first-quarterly-loss-in-four-years.html?_r=0

by mermalaude • 14 years ago

88 86 14 years ago

nytimes.com

dangrossman• 14 years ago

If I had any cash sitting in my brokerage account, I'd probably buy a few more shares of AMZN with it right now.

johnrgrace• 14 years ago

I like the company but at 250-300 times earnings it's a darn expensive stock.

malandrew• 14 years ago

I'm guessing everyone is waiting until Amazon is the only game in town and can increase margins every product but those that would allow a new competitor to survive to profitability.

Once they are in a position to increase margins without risk of lost market share, the current valuation will be justified.

jpdoctor• 14 years ago

> If I had any cash sitting in my brokerage account, ...

Uh oh, classic indicator.

simonsarris2• 14 years ago

Shares already recovering, loss was "better" than expectations, a lot of their spending is on important business stuff (warehouses, kindle, web properties) that will yield returns later.

In other words, revenue is nearly identical and there's no profit, presumably because of these new things.

Amazon is one of the few very large companies that has extremely high potential for growth. I made an OK amount of money buying them after post-earnings panic and selling 1 day to 60 days later this year and last.

If it ever goes back down to 190 I might throw some % of my long term money their way.

(100% of my long term money, which is about $1000 every two weeks, is currently just going to TGT, another long term big company that already has a dividend but still has plenty growth potential)

((90% of my short term money, on the other hand, was buying 10K shares of OCZ at 4.90. Now its at 1.36. Ouch!))

thetabyte• 14 years ago

Dumb question, as I literally know nothing about stock or savings: isn't it generally a bad idea to put 100% of your long term money in any one place?

simonsarris2• 14 years ago

Sorry, I'm only referring to new money: every 2 weeks I put $1000 into my brokerage account to buy whatever long term stocks/funds on my watchlist look good that week.

Lately that's been nothing but Target, but it might switch to nothing but Amazon next month, or 50% AMZN 50% something else, and so on. So it's just the new money coming into the account getting divvied up, but doesn't reflect the actual holdings of long term account as a whole (which might only be 20% TGT and 80% other stuff)

gojomo• 14 years ago

That's a smart question. I hope simonsarris means 100% of his incremental dollars (new savings), and that he already has other other 'long-term dollars' in a broader range of investments.

rorrr• 14 years ago

Yes, it's a horrible idea. That's basically playing a lottery, since unexpected things happen all the time, successful companies go out of business (Yahoo, and AOL looked pretty damn good 10 years ago).

confluence10• 14 years ago

Isn't it stupid to just to have one job, one car, be a citizen of one country, have one house and one family. I mean really - one must diversify. What would you do if you lost any one of those?

No, it's not stupid to concentrate wealth. Problems only arise when you do it stupidly, like buying too big a house, being part of the wrong family, living in the wrong country or buying an unsafe car.

Diversification does not reduce risk but it cuts your returns in half. All correlations go to one in a crisis and you can't hedge the end of the world.

Note: To all downvoters - putting all your eggs in multiple baskets does not protect you from an asteroid impact any more than a person with all eggs in one basket.

People who think diversification makes them safe are frankly wrong.

ahi2• 14 years ago

>a lot of their spending is on important business stuff (warehouses, kindle, web properties) that will yield returns later

This has been the Amazon story basically since founding. At some point, a company needs to yield real returns on their investments.

lotsofpulp3• 14 years ago

Wal Mart's profit margins are only a few percentage points, maybe 5% if they're lucky. That's the nature of retail. There definitely seems to be some utility and efficiency gains being made by Amazon. I doubt investors are seeking the kind of explosive growth or profits seen in tech companies like Apple, but rather a steady gain in market share from companies like Wal Mart, Best Buy, and whatever else you can deliver to a home.

rm999• 14 years ago

Not quite, their operating income steadily grew until 2010, when it was about 5x higher than in 2003. That said, it makes sense. Amazon has very lofty but realistic goals, which are an intriguing combination. These goals would be impossible without all that investment.

ChuckMcM• 14 years ago

Back during the dot.com days Yahoo Finance had a game where you could "play the market." (take note entrepreneurs this could be a lifestyle business :-) For each group you got $100,000 to invest and you were in competition with other people in your group for best return. I lost about $75,000 on Amazon stock :-).

However, my actual portfolio has done ok with Amazon so I'm not complaining.

gareim• 14 years ago

I did something similar to this in high school a few years ago. I ended up losing to another team in the class that bought Gamestop and other related stocks. I stuck with stocks like Intel and GE. If the game had ended even a two weeks later, I would have won.

These games teach high school students very little about investing, especially long term. The other team's strategy was simply "I play video games and I like Gamestop, so let's buy Gamestop!".

Bry789123• 14 years ago

Our school once had this competition as well. Given the short time period of these competitions, you have to buy high beta stocks in order to do well, or very low beta if the market is falling overall.

In order to win this a friend and I decided to team up and split the winnings. Basically what we did was to get one of us to buy the riskiest investments that we could (penny stocks, other low cap stocks, risky derivatives etc.) and the other would short them. This way over the course of the few weeks one of us would be dead last, and the other far ahead.

Worked like a charm.

theatraine• 14 years ago

They're also building up their human capital. They've recently been hiring quite a lot of engineers, which will certainly yield later returns. I'm basing this on my own experience with them, as I got a job offer, spoke with several recruiters, and toured their campus, and now live in Seattle.

ronaldj• 14 years ago

Oh man! I lost a bunch on OCZ too. :\

iyulaev• 14 years ago

Say what you want about some of their other business practices, but they appear to have successfully destroyed rents in the retail industry, which is great for consumers of retail. Regardless of how they do for their shareholders, that is a real benefit to society.

Right?

pyoung6• 14 years ago

That is a difficult question to answer. A good parallel to what amazon is doing to retail is what globalization did to manufacturing. As we all know, manufacturing in the US has been gutted and is now largely based in developing countries. While this is good for the consumer because products are cheaper, this also resulted in a great deal of unemployment for a certain category of workers (primarily low skill). Retail, which is also a major employment source for low skill workers, is now facing similar pressure from companies like Amazon, who employ significantly fewer people than the companies that they replace.

Ultimately, developed countries are going to have a difficult time finding good paying, reliable jobs for low skilled employees. This is an inevitable by-product of our shift to a globalized, modern economy and is one of the primary reasons why the US and Europe are struggling to keep their social safety programs solvent.

ars• 14 years ago

> As we all know, manufacturing in the US has been gutted and is now largely based in developing countries

We all know it, and yet it's not actually true. America is the largest manufacturer in the world.

The main that happened is America switched from making many multiples of cheap item, to making smaller quantities of much more expensive and complicated items.

WalterBright2• 14 years ago

I don't believe that. Throughout history, labor-saving machinery has put people out of work, and they become available labor for entirely new industries.

For example, there's a growing industry now of digitizing the zillions of documents, books, photos, movies, art, etc. This is low skilled labor.

Or Apple/Google/Microsoft sticking camera hats on people and having them hike trails to develop maps.

The list is endless.

ridiculous_fish• 14 years ago

Brick and mortar stores are essentially free showrooms for online retailers. How many of us decide which TV to buy at Best Buy, and then get it for less at Amazon?

We may not like the consequences if B&M retailers are driven out of business, and we're forced to rely on dubious online reviews to make purchasing decisions.

lotsofpulp3• 14 years ago

My experiences with online reviews have been great, especially compared to anything a big box store can offer. With the help of websites explaining the technical details, forums discussing the product, and reviews at places like Newegg and Amazon, I am armed with much better information that I would have been had I gone to Best Buy to look at something and asked an employee there.

I can even look at manufacturer responses to reviews on Newegg, and ask other customers about specific issues I might have with a product. Of course, there is a possibility of the system being gamed, but I've had nothing but great experiences, although I am still vigilant for manipulated reviews.

Edit: I also don't have to choose from substandard consumer products sold at most stores, with high markups on trivial things like wires. With monoprice, Amazon, newegg, and others I can get reliable, quality products for what they're actually worth.

trimbo• 14 years ago

Important tidbit buried in there: "Amazon said it lost 60 cents a share in the third quarter, but more than half of that was from its investment in the daily deals site Living Social"

dinkman• 14 years ago

With its price-to-earnings multiple in the stratosphere, Amazon often comes up in conversation as being "overpriced." While this conclusion may be true, it's not because Amazon is unprofitable...

Publicly traded companies optimize for return-on-invested-capital (ROIC), which includes profits (dividends) plus increases in equity value (share price).

Stable companies in stable markets often make the greatest returns by increasing revenue and reducing costs (i.e., optimizing for earnings). Companies in high-growth markets (esp. competitive ones) typically optimize for long-term market share/growth (which manifests as increases in equity value). Amazon falls into the latter category.

Not sure this makes sense to/helps anyone, but yeah, that's why Amazon operates the way it does.

donavanm• 14 years ago

Get big fast. Amazon is still getting bigger, and accelerating the pace recently.

The "low margin retailer" comments about AWS are funny too. AWS is effectively a billion dollar company, eligible for HUGE subsidies (from retail), under effectively no pressure for revenue/profits, and is ok with 3% margins. That sounds like a nightmare to compete with.

Androsynth• 14 years ago

About two months ago I was thinking that the bubble, of which everyones been talking about for the past years, might finally pop soon. I thought I might short some major tech companies and make some money off of it. I had two indicators that I was looking at to determine the start of it:

1-Zynga begins laying off people. (really, any big web 2.0 company begins laying off people, but zynga seemed like the logical choice.) The way I see it is this: if a flood of veteran web-devs, artists, PMs, etc hit the SF market, salaries will go down slightly as demand goes down. Since techies spend their money on tech, this will lead to revenues going down within the industry. This will begin a positive feedback loop because everything seems to be built on top of itself right now.

2-Second indicator is that Amazon's stock would fall. This is because they are essentially the bellwether of the tech industry: everyone runs their stuff on AWS. If their revs go down (which it doesnt look like they have), that means companies are feeling the pinch. Again, a positive feedback loop could quickly ensue.

Now that my two indicators have come to pass, I still don't believe strongly enough in the bubble theory to short the industry. But if anyone else wants to take my theory to the bank, I would be happy to take a 10% referral fee on any and all gains :)

jser• 14 years ago

Amazon does not breakout revenue for AWS -- it's grouped into the "Other" category. Analysts estimate it could be nearing a $1B business, but Amazon has a yearly revenue exceeding $48B. I don't think the stock market places much value on AWS today, so a slowdown should not greatly impact the stock (if the market did, we would have seen the stock decline during AWS outages).

KalobT• 14 years ago

Microsoft also reported their first loss not too long ago.

codex2• 14 years ago

I think Amazon's profit per employee is around $6K. Compare to Apple at $600K. Amazon is practically a non-profit. Not surprising, as they play in a shitty, ghetto space--retail.

tjdetwiler• 14 years ago

Apple is hardly the norm

blaines• 14 years ago

You're comparing Apples and Amazons here. The two things have similarities but are not alike.

tsotha2• 14 years ago

>I think Amazon's profit per employee is around $6K. Compare to Apple at $600K.

Amazon lost money, so what does it mean to say its profit per employee is $6k?

Anyway, a company that plows all its extra cash into growth doesn't make any profit in the short term, but if they're doing it right they'll make more money in the end. They went for a lot of years without making anything - now they're in a growth phase again.

polyfractal5• 14 years ago

Besides what other people have mentioned, there is also the fact that Amazon employs a lot of people, and many of them are performing relatively mundane service jobs. Picking and packing products from the Amazon warehouses requires a large workforce, despite all the advancements in automatic warehousing.

Profit per employee isn't really a useful number in this respect.

codex2• 14 years ago

This is my point; that Amazon is a shitty business because they have chosen a terrible sector: retail. That's what you get when your main competitor is Walmart. Look at the absolute profit numbers: 1/40th the profits of Microsoft; 1/100th the annual profits of Apple; 1/30th the annual profits of Google.

That said, they are desperately trying to get into real tech. businesses.

outside1234• 14 years ago

I feel like if Jason Fried were to comment on this article that he would say there is no time like the present to practice earning money.

I'm not buying the "we'll grow really fast and then profit later" - didn't we learn about how that worked out already with the dotbomb?

benmanns• 14 years ago

I think the difference here is that Amazon is taking in massive revenue and investing it in future infrastructure. Jason Fried advises against taking no revenue now while expecting to "figure out" some way to make some revenue in the future. Both have little or profit now, but Amazon can reasonably expect to make profit in the future, while that SuperCoolFreeApp can't.

tsotha2• 14 years ago

>I'm not buying the "we'll grow really fast and then profit later" - didn't we learn about how that worked out already with the dotbomb?

Actually, Amazon did spectacularly well during the internet bubble with just that strategy. This is a return to the company's roots, in a way.

Amazon Reports First Quarterly Loss in 4 Years

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