Can someone explain why investors are excited about Amazon earning $92 million on revenue of $23.2 billion (nytimes)? That’s a 0.4 percent profit. Does the stock going up 17 percent on this news make a mockery of the Efficient Market Hypothesis?
6 thoughts on “Why is it exciting that Amazon made a 0.4 percent profit?”
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A US tech company that made a profit, any profit, is huge news ! Particularly if said profit was derived without a) scamming advertisers à la Facebook, or b) exclusively re-selling Foxconn products à la Apple.
Amazon really is the new Walmart.
The market is supposed to price in known information and expectations and the expectation was that Amazon would make a loss, so the surprising good news that they made a (small) profit caused the price to move.
Now that they have made a profit, Bezos will want to cut prices more. He is interested in market share and membership, not making a few pennies on a sale. Costco also loses money on every sale – their entire profit comes from membership revenue.
What I heard from an Amazon insider and a venture-capitalist type was that Amazon is building infrastructure and re-investing every dime it has in doing so. That the moment they *want* a profit, they just pause building new warehouses and outfitting new drones and developing robots and BOOM, the heavens open and profit falls upon them.
I think the market was reacting to that happening without Amazon really making a decision to turn on the spigot. (Or block the drain. However you want to look at that.)
It’s called being a publicly traded company whose analysts are insane.
Imagine for a moment trying to sell your business (and not a new business, either. No sir! A business that has been open for twenty years!) for 735 times its earnings…buyers would think you’re insane. Hence my analyst comments.
It’s a rigged system and nothing more. The funny thing is, after Amazon starts making larger profits but their internal growth slows, the stock price will fall outta bed ala Dell, Cisco, Microsoft, etc…
I guess that the rise in stock price reflects the upside surprise to investors rather than the absolute margin of profit. I recall reading somewhere that Amazon’s cloud operations were going well and could be spun off at some point. Wonder if that is factoring into analysts’ decisions?
I am quite happy to let investors subsidize Amazon so they continue to deliver boxes of bath tissue and kitchen rolls to me by UPS. Sure saves me the time and effort of having to drive a couple miles to my neighborhood BJ’s club.
They’re transitioning from being known as a store to being known as a web services platform. For the 1st time, there was no new phone, no new kindle, no Amazon Watch, not a single new consumer product to get anyone excited. AWS had always been a growing monster that no-one talked about, but now it’s accounting for all their net revenue. Of course, stock gains nowadays are mainly driven by share buybacks. Too bad their employees will never have even 1/1000th of Jeff’s 83,921,121 shares, but that’s the new economy.