- Amazon.com earnings revisions are starting to incorporate the most recent guidance.
- As predicted, 2014 is now a zero. Impressively, 2015 was also cut deep, making the stock more expensive now on 2015 estimates than before its earnings-induced drop.
- There is more downside to 2015 estimates, even though the stock remains incredibly rich.
The fallout from Amazon.com's (NASDAQ:AMZN) Q3 guidance has been running through the Street EPS consensus estimates. As predicted full-year 2014 earnings estimates have converged towards zero - they're at $0.02 now. On the other hand, Q3 2014 has dropped to a loss $0.69 per share. I believe Q3 2014 still has more downside, because: 1) There are still estimates close to $0.00; 2) The high-end of Amazon.com's operating guidance is compatible with a loss of $1.00 per share due to interest charges, taxes and minority losses.
One of the interesting things about the revisions is that 2015 was also revised lower, from $3.28 prior to the Q2 2014 earnings report to $2.07 now. Amazingly, taking into account 2015 EPS estimates, this means that Amazon.com is more expensive, after dropping from $358.61 prior to earnings to $321 now, than before reporting earnings. Amazon.com traded at 109 times 2015 estimates prior to earnings, and trades at 155 times 2015 earnings estimates now.
The short thesis remains in force and is reinforced by these estimate revisions. Amazon.com's reduced profitability is structural, and it emanates from the changing sales mix. Now, things are even worse than before with AWS economics degrading substantially from a price war. Indeed, it might be that AWS economics might also be structurally unfavorable. Although Amazon.com has been taking many measures to shore up profitability, the likelihood is still that 2015 will see further earnings estimates reductions, even though Amazon.com stock is already incredibly rich when compared to those estimates.