Amazon's (NASDAQ:AMZN) Q4 earnings report yielded some surprising results (at least for those who are used to seeing the stock price go straight up). The company issued a rare disappointing earnings report that saw it miss both earnings and revenue estimates, but the real question is exactly how to interpret the results. It wasn't that long ago that Amazon could literally deliver any set of results and watch the stock pop at least 10%. This week was a different story.
Depending on if you want to make the bull or the bear argument, both could find evidence in the report that supported their respective cases.
Bulls will point out that if you look purely at the numbers, the results look pretty good. Total revenue for the quarter was +22% year over year (including +24% in North America). AWS revenue was +69%. Gross margin expanded to 31.9% from 29.5%. Was the problem that expectations were simply too high?
Bears will say that spiraling expense levels were unnerving. Rising expenses from fulfillment costs (+33%), marketing expenses (+15%) and tech/content (+36%) all affected the bottom line. Also, the strong dollar continues to frustrate. International revenue rose 22% but only 12% when adjusted for currency.
The good news for those bullish on Amazon is that its perceived issues from this quarter's results are fixable. Currency headwind is an economic factor that really can't be controlled and isn't a result of company operations specifically.
Another possible contributing factor? Pure uncertainty. I shared the following graphic I found on social media that I thought was interesting.
The takeaway from this is that there's just no consistency in Amazon's results. Net income and margins are just all over the place on a quarter-to-quarter basis. It seems to be getting increasingly more difficult to determine if Amazon is a company that should still be valued as a high growth company or as one that is maturing and finally trying to generate a profit. Amazon has sported an incredibly high valuation for what seems like two decades and investors might finally be tiring of the guessing game.
The good news for those bullish on Amazon is that its perceived issues from this quarter's results are fixable. Currency headwind is an economic factor that really can't be controlled and isn't a result of company operations specifically. And higher fulfillment costs can actually be considered a good problem. High fulfillment costs mean high demand. Part of that may be the holiday season but whatever the reason, you can bet that Bezos and company will do what they need to solve the problem.
… well, as much of a bargain as a stock trading at 60 times 2017 earnings. More like an opportunity to buy the dip.
While few will argue that Amazon isn't overvalued, it feels like the issues that Amazon ran into in the fourth quarter are problems that will be fixed in the first half of 2016. The decision to plan for several hundred brick and mortar stores seems like a curious decision given that Amazon's entire life has been dedicated to the online business but there is an opportunity for success should they approach these stores the way Apple (NASDAQ:AAPL) operates the Apple Store.
The lowered expectations that came from fourth quarter results could be setting up for a first quarter beat if Amazon can handle its expense issues. At current prices, Amazon could have more upside than downside in the near term from here.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.