Amazon (NASDAQ:AMZN) reported disappointing earnings after the bell Thursday. Although revenue estimates were in-line at $19.34 billion, it lost $0.27 per share, compared to estimates of a loss of just $0.15 per share. Although this represents a prodigious revenue growth from $15.7 billion in the same period last year, losses widened from a loss of $0.02 per share.
On July 14th, I opined that Amazon's strategy of diversifying into innumerable directions was not sustainable and would not allow for it to justify its trading multiples. The industries that it is entering are highly commoditized and will not allow for margin expansion. The cost of diversifying into these novel directions is clearly higher than the profits they return.
After the release, Amazon has fallen more than 7%, so far, and I expect it to fall further. A market capitalization of $165 billion for a company that is still grossly unprofitable is obscene. Although Amazon is undoubtedly adept and growing revenue, the expectations priced into the stock are far too optimistic. Amazon is a great company, but as an investment, at these levels, it is horrendous.
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