Before anything else, yes, I am short Amazon.com (AMZN). But, in spite of that, the earnings release that everyone is celebrating is really nothing to write home about. Indeed, there are again mostly worrying signs in it.
The following are just a few of the things that are evident:
- The entire beat was down to "Equity-method investment activity, net of tax". That is, a one-off gain which we will surely be able to read about in the 10-Q. This line represented more that a $100mn positive swing, thus accounting for $0.21 in EPS. The $0.28 reported EPS minus this swing would bring EPS down to the $0.07 estimate;
- Again, Amazon.com guided next quarter down. Indeed, right now even the top of guidance ($40mn) is close to zero, and most of the guidance is now underwater;
- Revenue guidance for next quarter was also weak, midpoint was $12.6 billion versus the $12.82 billion market consensus;
- Amazon.com's operating cash flow TTM fell 22% from the quarter before;
- Amazon.com's free cash flow TTM fell 45% from the quarter before;
- Almost unbelievably, even Amazon.com's cash in the balance sheet is almost $1.2 billion below where it stood in the same quarter last year (March 2012 Cash+Marketable securities are at $5.715 billion versus $6.881 billion in March 2011) !
Is there anything positive? Yes. Operating profit can be said to be above expectations, and net shipping costs / sales fell to 5.1% from 5.3% in Q4 2011. But this hardly compensate all the negatives above, and if guidance is to be believed, operating profit is going down again next quarter.
The market's reaction to the Amazon.com earnings release makes little sense. Mostly nothing changed favorably for Amazon, it's still on track to produce losses sooner or later and the beat that the market seems to be lapping up was mostly due to a one-off equity gain. Certainly, this does not justify the stock trading at an even higher premium while imploding on all metrics except revenue.
Disclosure: I am short AMZN.