Amazon -6% AH; major Q3 op. loss expected


Amazon (NASDAQ:AMZN) expects Q3 revenue of $19.7B-$21.5B (+15%-26% Y/Y) vs. a $20.8B consensus. Op. loss is expected to total $410M-$810M, up from just $25M a year earlier.

North America revenue rose 26% Y/Y in Q2 to $12B, and international revenue 18% to $7.3B. The growth rates are even with Q1 levels. North America had a $438M segment op. profit, and international a $34M segment op. loss.

Media revenue +10% Y/Y to $4.8B, a pickup from Q1's 8% growth. EGM revenue +27% to $13.3B, an even growth rate with Q1.

"Other" revenue +37% to $1.22B, with North American "Other" (dominated by AWS) rising 38% to $1.17B. Amazon claims 90% Y/Y AWS usage growth.

Gross margin +210 bps Y/Y to 30.7%. Fulfillment spend +15% to $2.38B, marketing +40% to $943M, tech/content +40% to $2.23B. Free cash flow for the trailing 12 months is $1.04B.

Citi's pre-earnings downgrade was well-timed.

Q2 results, PR

Update: North American "Other" revenue, while up 38% Y/Y, fell 3% Q/Q. Major AWS price cuts (came in the wake of big cuts from Google, and were followed by similar cuts from Microsoft) appear to be the culprit.

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Comments (64)
  • nowandlater
    , contributor
    Comments (155) | Send Message
     
    lose half-billion in a quarter? Who cares? "We're in it for the long haul" (again)
    24 Jul 2014, 04:44 PM Reply Like
  • Sittingcrow
    , contributor
    Comments (107) | Send Message
     
    I just want to get the visual image of Bozo, uh, I mean, Bezos out of my brain. He reminds me of one of the extras in "One Flew Over the Cuckoo's Nest", as the company sinks into the jungle river.

     

    Can't wait to read the Washington Post for the rest of my life. Just joking.
    24 Jul 2014, 06:12 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11069) | Send Message
     
    Trailing P/E ratio: 524?
    Price to Book value: 14.78?
    Returns on Assets: 0.90%?
    $300 million in net income vs. a market cap of $152 BILLION?
    ____________

     

    Good luck to all of you new longs in (NASDAQ:AMZN)...you are sure going to need it.
    24 Jul 2014, 06:21 PM Reply Like
  • Daniel Radakovich
    , contributor
    Comments (1017) | Send Message
     
    I would say Bezos is one of the best CEO's out there. Betting against him is quite a fools game. I have never heard someone sell because of a P/E ratio..
    24 Jul 2014, 09:22 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    Well, but we've seen a couple of people sell because of earnings going to hell, free cash flow going to hell, earnings estimates going to hell, etc.

     

    Haven't we?
    24 Jul 2014, 09:52 PM Reply Like
  • chopchop0
    , contributor
    Comments (5071) | Send Message
     
    "I have never heard someone sell because of a P/E ratio.."

     

    Famous last words in 2000.....
    24 Jul 2014, 09:58 PM Reply Like
  • Justin Jaynes
    , contributor
    Comments (3152) | Send Message
     
    "Look ma! No stop loss!"
    24 Jul 2014, 11:21 PM Reply Like
  • june1234
    , contributor
    Comments (4262) | Send Message
     
    All that true. Back in late 90's was worth $18 a share. Rest is history as they say.
    25 Jul 2014, 06:57 AM Reply Like
  • ReligiousWacko
    , contributor
    Comments (1825) | Send Message
     
    hilarious .. My friend just told me about signing up for another Prime trial to order a $10 rake and few random household things. The household things all broke during shipment so he returned them.

     

    But hey, revenue growth!
    24 Jul 2014, 04:46 PM Reply Like
  • Michael428
    , contributor
    Comments (861) | Send Message
     
    The guidance is way beyond horrific...compare with guidance for Q3/2013.

     

    Current Assets now equal current liabilities. A change for the worse of about $1.5 billion since Q2/2013.

     

    Someone is living in a dream land here...this stock should be trading for $40.

     

    Plus for all the silly reporters saying they are investing in warehouses. The warehouses are being leased.

     

    Gary should even find some humor here.
    24 Jul 2014, 04:48 PM Reply Like
  • ReligiousWacko
    , contributor
    Comments (1825) | Send Message
     
    Michael,

     

    ten year chart is UP.

     

    -Gary
    24 Jul 2014, 04:55 PM Reply Like
  • Mort19
    , contributor
    Comments (702) | Send Message
     
    Michael428 I think they are paying for last year's ebooks accounting change which I believe was 100% in place in 3rd Q of 2013 as they magically blew past revenue estimates while margins were horrific.

     

    Now they must make up for that essentially fake/artificial revenue growth by selling more $1's for $.95.

     

    The shares have been controlled here for too long and it will be interesting to see if any of the honest analysts, yes I jest, have the stones to do what they done many times, i.e. drastically reduce estimates while raising price targets.
    24 Jul 2014, 04:58 PM Reply Like
  • C.N
    , contributor
    Comments (261) | Send Message
     
    forgot "lol"
    24 Jul 2014, 08:37 PM Reply Like
  • Transcripts&10-K's
    , contributor
    Comments (1214) | Send Message
     
    So net product sales growth failed to cross 20% in the quarter; soon enough, this piece of the business will be growing ~15% or less - or half the rate of Walmart's ecommerce business.
    24 Jul 2014, 04:50 PM Reply Like
  • vikramnjnjjdjnd
    , contributor
    Comments (1444) | Send Message
     
    Alibaba will dominate USA ecommerce within the decade.
    24 Jul 2014, 04:52 PM Reply Like
  • portatopia
    , contributor
    Comments (1446) | Send Message
     
    Not a chance, outside of China, no body heard of Alibaba. The purpose for Alibaba's IPO is to enrich their owners and early investors.
    24 Jul 2014, 10:31 PM Reply Like
  • Shaduc
    , contributor
    Comments (2909) | Send Message
     
    "outside of China, no body heard of Alibaba. "

     

    Who is no body?

     

    Anyone wanting to source without an intermediary requires Alibaba.
    24 Jul 2014, 10:44 PM Reply Like
  • sethmcs
    , contributor
    Comments (3534) | Send Message
     
    Alibaba IPO might be the pin to break AMZN bubble. Think about it. Who pushed AMZN to where it is? Institutional investors that need a name for the e commerce bucket in their portfolio. Alibaba business model requires so much less overhead and is proven to be wildly successful in China. My guess is it will work so well here that it will bring down AMZN too. Maybe the trade of the year is short AMZN and buy Alibaba. I bet fund managers are think about this right now.
    24 Jul 2014, 11:22 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    Though one can expect Alibaba to come in amazingly expensive as well. Still, at least it won't have the fundamental problems which haunt AMZN.
    24 Jul 2014, 11:24 PM Reply Like
  • Shaduc
    , contributor
    Comments (2909) | Send Message
     
    "won't have the fundamental problems which haunt AMZN.'

     

    Any further comparison!
    25 Jul 2014, 12:06 AM Reply Like
  • name999
    , contributor
    Comments (191) | Send Message
     
    Amazon is trying to compete with almost all the 800-pound gorilla in every arena. Cloud service with Microsoft, IBM, Google, Salesforce; Marketplace service with Ebay; Tablet/Phone with Apple, Samsung, Google; Video streaming with Netflix, Hulu. The list can go on and on.

     

    Why not focusing on the most profitable service/product?

     

    This terrible result is not the first one, we have seen a couple in the past.

     

    Mr. Bezos must have some very impressive relationships with big banks and PE firms to have them support him this long
    24 Jul 2014, 04:55 PM Reply Like
  • Esekla
    , contributor
    Comments (4339) | Send Message
     
    The real issue comes next week, from the Senate, as noted in my most recent article. Without action there, the continued growth in sales indicates a price target in the $370s.
    24 Jul 2014, 04:56 PM Reply Like
  • mlauritz
    , contributor
    Comments (354) | Send Message
     
    What's the Point of Sales if they can Never make any money off them?

     

    Going to be a Very Hard Fall for this Market when Investors actually price companies for what they Make in terms of Real MONEY.

     

    I can personally generate Millions of Dollars of "Sales" out of my Garage by just buying Junk off AMZN and putting it right back up on their Market for 10 cents cheaper - Maybe I should IPO too...
    24 Jul 2014, 05:29 PM Reply Like
  • ReligiousWacko
    , contributor
    Comments (1825) | Send Message
     
    mlauritz, to IPO, you would have to commit to using revenues from those sales to fund further money losing businesses.
    24 Jul 2014, 05:40 PM Reply Like
  • mlauritz
    , contributor
    Comments (354) | Send Message
     
    ^ Excellent Point! - That way I can command a higher P/S Ratio!

     

    OR Maybe I will insist on being Valued on a EBITDAS&COGS Metric.

     

    I will Buy & Fire-Off some Huge Fireworks and tell my "Investors" I'm competing with Space X.

     

    Shareholder meetings are going to be so FUN!
    24 Jul 2014, 06:43 PM Reply Like
  • Esekla
    , contributor
    Comments (4339) | Send Message
     
    There is no real money any more. That went out the window in 1971, and if there was going to be a reality check on financing, we would have had it in 2008.

     

    Some day it will bite us hard, but that day is not tomorrow, and hopefully not in my lifetime.
    24 Jul 2014, 07:07 PM Reply Like
  • Mark Humphrey
    , contributor
    Comments (931) | Send Message
     
    Amazon's forecasting operating losses (!) of one half to three quarters of a billion dollars in one quarter, deep into the trumpeted economic recovery.

     

    But odds are high that we're moving beyond the sweet spot in the inflationary boom. Just ahead are rudely rising prices, which people are just beginning to notice; and probably weakening economic output, as costs catch up with stagnating revenue growth.

     

    If I'm wrong and economic output doesn't start to slump, while prices march resolutely higher, then odds favor higher interest rates on the long end.

     

    Either way, Amazon's customers will rein in spending, from necessity. Meanwhile, costs will continue to climb, because they've doubled the money supply over the past 5 years. A half billion operating loss today will morph into much larger losses as the macro picture turns ugly.

     

    I'm guessing the economy and stock prices start to cave in pretty soon--within the next 6 months or so. Time will tell.
    24 Jul 2014, 10:24 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (820) | Send Message
     
    You raise such a good point. If customers reign in spending, how will the immense operating costs take care of revenue?
    25 Jul 2014, 01:00 AM Reply Like
  • Johnwoods41
    , contributor
    Comments (177) | Send Message
     
    Now we know why the firephone was released today, were they hoping some fanfare about the phone might distract us ??
    24 Jul 2014, 05:29 PM Reply Like
  • rajygoroc
    , contributor
    Comments (27) | Send Message
     
    Megalomania?
    24 Jul 2014, 05:34 PM Reply Like
  • User 29086695
    , contributor
    Comments (5) | Send Message
     
    The emperor has no clothes. The idea that real profit is always "coming" down the road. Amazon has been in business for 20 years and hasn't made any money. No other company in America gets away with it. They lose billions in shipping every year, and the more Prime Buyers buy, the more they lose. Time for people to get off their butts and go the the store and buy stuff "live" before their are no retail outlets when amazon eventually collapses!
    24 Jul 2014, 06:14 PM Reply Like
  • Esekla
    , contributor
    Comments (4339) | Send Message
     
    Actually, there are several companies in America that get away with it, and in a world where currency has no ties to the physical, there's some justification for that. Read my Momentum Mechanism article. It talks about how fundamentals still matter, but with different time scale and stock price behavior. I can agree on the absurdity of it all, but I've made my predictions on what it will take to break the behavior and this isn't it. Without action from the Senate next week, the continued growth in revenue will probably drive an eventual return to 370 or so.
    24 Jul 2014, 06:33 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    Eselka, tell us of another company with a market cap north of $100 billion that's losing money, then.
    24 Jul 2014, 07:31 PM Reply Like
  • SeattleInvestorAMS
    , contributor
    Comments (209) | Send Message
     
    Paulo, you're short AMZN right? I'm new to investing, can you explain your shorting strategy here?
    24 Jul 2014, 09:15 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    My shorting strategy is based on the fact that Amazon.com's earnings estimates are the closest thing to obvious fantasy you can find in the market, yet Amazon.com somehow managed to trade at a massive premium to even that obvious fantasy.

     

    The fantasy is unravelling. Were it not for the money printing and Amazon.com would have long imploded in the market. Instead of going to $400, it would have gone to $80, and even there it would be trading at an unjustifiable premium to just about everything else.
    24 Jul 2014, 09:54 PM Reply Like
  • shangjeen
    , contributor
    Comments (338) | Send Message
     
    If you think AMZN is bad, try shorting TSLA too.

     

    At least AMZN has a chance (even if it's not a great shot) at being a very profitable organization one day, and is a market leader (by far) in a few segments.

     

    TSLA doesn't even have that, and it's a $20B market cap company! With more vaporware than actual products sold.

     

    The market is crazy sometimes. AMZN should be worth $20B (at best) and TSLA should be worth about $5B.
    24 Jul 2014, 11:21 PM Reply Like
  • chopchop0
    , contributor
    Comments (5071) | Send Message
     
    "TSLA doesn't even have that, and it's a $20B market cap company! With more vaporware than actual products sold.

     

    The market is crazy sometimes. AMZN should be worth $20B (at best) and TSLA should be worth about $5B."

     

    TSLA has a CEO who doesn't eschew profit as much as Bezos does. TSLA also makes an "aspirational" and propietary product (supercharger network) and cares about margins. AMZN competes with WMT. I sleep well at night owning TSLA. You couldn't pay me to buy AMZN even after this recent sell off.
    24 Jul 2014, 11:32 PM Reply Like
  • shangjeen
    , contributor
    Comments (338) | Send Message
     
    "TSLA has a CEO who doesn't eschew profit as much as Bezos does. TSLA also makes an "aspirational" and propietary product (supercharger network) and cares about margins."

     

    LOL!
    TSLA = AMZN on wheels, without the accessibility, brand awareness or uniqueness.
    You know TSLA is going to drop like a stone when you see the following:
    Toyota (NYSE:TM) = 200B Market Cap (US)
    BMW (BMW.DE) = 62.49B Market Cap (Euro)
    TSLA = 20B market cap.

     

    Toyota = >10M cars sold (2013)
    BMW = almost 2M cars sold (2013)
    TSLA = not even 20k Model S cars sold in 2013. Pathetic.
    25 Jul 2014, 04:15 AM Reply Like
  • Esekla
    , contributor
    Comments (4339) | Send Message
     
    You added a parameter, Paulo. Otherwise, I would have said Salesforce, which has had increasingly negative operating income for 3 years running, but a market cap of "only" $33 billion. I wouldn't buy that PoS either, but I sure wouldn't it short it. I also wouldn't be surprised to see Bezos take the same step as Benioff and offer a (fundamentally meaningless) split.

     

    You never did comment on my Momentum Mechanism article.. . The economic problems predicted elsewhere are part of why the time is still not right for collapse.

     

    Sure AMZN may languish for a bit but I hope you took short profits back just above $300, which was the exact bottom that my first AMZN article predicted, and I hope you will do so again now. I'm sorry to say that the emperor is no danger of being deposed, so he's going to remain a nudist for quite a while yet.
    25 Jul 2014, 08:20 AM Reply Like
  • thotdoc
    , contributor
    Comments (1958) | Send Message
     
    It's different this time. This time, it's OK to run a business to not make money. You see, we, at Amazon, have another goal: Be everything to everyone. And, we know that when we are everything to everyone that, then, everything will be OK. Profits? No, you don't understand. Amazon is not about profits, it's about being everything to everyone. And, it seems to be working, so we're pretty happy.
    24 Jul 2014, 06:51 PM Reply Like
  • Esekla
    , contributor
    Comments (4339) | Send Message
     
    I hear you, but if you're comparing to the dot com boom, it's a bad comparison. The operating loss that people are trying to make a big deal over is a small single digit % of Amazon's revenue. Dot com companies often had no revenue.

     

    My point is not to justify any of Amazon's operating model, it's just to point out that they have so much rope that they're more in danger of being buried by it than hanging themselves.
    24 Jul 2014, 07:11 PM Reply Like
  • Ed Porter
    , contributor
    Comments (715) | Send Message
     
    And we are making huge in-roads into Google's domination!

     

    Yep, really massive in-roads. That's why it's costing us so much.

     

    Just bear with us dear investor, could ya?
    24 Jul 2014, 07:12 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    Actually the loss is becoming significant. At the level AMZN just guided to, in 20 quarters AMZN would wipe out its entire book value (not going to happen because of the Xmas quarter, but still).

     

    Also, FCF is on its way to zero, as I said. It went from $1.4 billion to $1.0 billion in this Q alone, and seems likely to plunge further in the next Q.
    24 Jul 2014, 07:32 PM Reply Like
  • shangjeen
    , contributor
    Comments (338) | Send Message
     
    That's true Paulo, but AMZN won't go bankrupt.

     

    They can always dilute, with a $100B market cap, that should give them a huge chunk of change easily.
    They can always go to the Bond market as well - if the likes of Greece and Spain can find creditors, then so can AMZN on brand name alone.

     

    I wouldn't invest in AMZN at this point, and you're right that their share price is overvalued, but they are not in any major danger right now - the company is still a fairly solid company.

     

    AMZN - decent company, bad investment. My 2c.
    24 Jul 2014, 11:31 PM Reply Like
  • thotdoc
    , contributor
    Comments (1958) | Send Message
     
    No, I'm not talking about the .com situation. I've been investing since 1959. Every so often, there will be a replay of some new thing or situation that doesn't make sense except within the context of that specific situation...house prices go up forever, tulips are a good investment, it goes on...

     

    This situation is: making a profit isn't a focus of the business and it's OK, this time.

     

    It's not. It's a fantasy and house of cards.
    25 Jul 2014, 12:44 AM Reply Like
  • psychological-dividends
    , contributor
    Comments (820) | Send Message
     
    Thank you! I've been looking for the Q/Q growth in FCF. I know that's the metric Bezos said he wants to maximize, not margins.
    25 Jul 2014, 12:51 AM Reply Like
  • Ed Porter
    , contributor
    Comments (715) | Send Message
     
    $300? Why is the stock at $200? Oh that's why it's at $100! Yep $50 fair value.
    24 Jul 2014, 07:11 PM Reply Like
  • loftyhgoal
    , contributor
    Comments (82) | Send Message
     
    I keep thinking that these guys will provide us with the catalyst for the major correction that everyone is looking for. These earnings calls are broken records - at what point does the investment community say uncle? Or maybe investors are waiting for the business model that makes sense to go public in the US?
    24 Jul 2014, 07:53 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    Truth be said, this particular earnings report had the WORST guidance by far, since 2010.

     

    The guidance implies a $1 EPS loss in the quarter, and that's taking the HIGH of the guidance range. It also implies the wiping out of the entire 2014 EPS estimates, those will converge to $0 at best.
    24 Jul 2014, 08:01 PM Reply Like
  • TedNewbie
    , contributor
    Comments (198) | Send Message
     
    Who is going to be the first to upgrade the stock and price targets tomorrow; while lowering EPS estimates? Will it be Morgan Stanley... Goldman... Blodget... Crammer? Place your bets now.
    24 Jul 2014, 09:39 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    I think this time the loss is so massive, the guide down so horrendous, that no one will upgrade it.

     

    The thing guided to a $1 loss in a SINGLE quarter, and such a loss will wipe out the earnings for the entire year, as well.
    24 Jul 2014, 09:55 PM Reply Like
  • shangjeen
    , contributor
    Comments (338) | Send Message
     
    Think a lot of that is down to the ill-advised "Fire Phone".

     

    It really set their FCF, profitability and now their share price - on fire.

     

    That's the problem when you try to be all things to all people, better to be like AAPL and do a few things excellently, than do a lot of things, mediocre-ly.
    24 Jul 2014, 11:33 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (820) | Send Message
     
    So is it true that Amazon is a charity provided by the investment community to serve customers? If so, thank goodness I'm not a shareholder!

     

    Jeff Bezos is insanely smart I think, but retail is such a tough business that he really has his work cut out for him.
    24 Jul 2014, 08:08 PM Reply Like
  • surplusmarketing
    , contributor
    Comments (2267) | Send Message
     
    It is a pump and dump possibly masked as a non-profit organization (for now) until it turns on that spigot of profits!

     

    WMT can't do this. Neither can APPL, GOOGL, COST, KR, EBAY, you get the picture.

     

    AMZN is "special". It is a long-term "investor" of the profitable domination of all its competitors that have, are, and will continue to bank profits quarter after quarter.

     

    But AMZN is out to make them all obsolete and vanish...soon, one day....
    24 Jul 2014, 09:09 PM Reply Like
  • chopchop0
    , contributor
    Comments (5071) | Send Message
     
    It sure is. I enjoy my lower cost items delivered to my house in 2 days, along with All I can consumer music and video.
    24 Jul 2014, 09:59 PM Reply Like
  • surplusmarketing
    , contributor
    Comments (2267) | Send Message
     
    Chopchop0

     

    You consume at your profit while they sell at their loss.

     

    Get it?

     

    Maybe you don't. Neither does Gary J.
    25 Jul 2014, 04:04 AM Reply Like
  • nickbritt1
    , contributor
    Comments (96) | Send Message
     
    Unit sales up only 23%, customer growth only up at a 10% annual rate, AWS growth rate plummeting and they are going to lose 500 million next quarter. I wish I was an octopus because I'd be using all eight to scoop us some shares below 280 tomorrow. It's a different story when all of a sudden your pissing with the big dogs like Google, Microsoft and IBM. The Zon better hope that some of the big boys don't get together and set up their own 3rd party website because if they do, this can go to zero.
    24 Jul 2014, 10:53 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (33043) | Send Message
     
    Why would you be buying it below $280, then?
    24 Jul 2014, 11:11 PM Reply Like
  • Left Banker
    , contributor
    Comments (3329) | Send Message
     
    Below 280?

     

    That's 12.5% off AH -10.5%.

     

    That octopus is dreaming.
    24 Jul 2014, 11:27 PM Reply Like
  • shangjeen
    , contributor
    Comments (338) | Send Message
     
    Wouldn't, but I'd consider it below $200. It will bounce, I'm pretty confident, but this baby will drop a fair bit more first I'd say.
    24 Jul 2014, 11:38 PM Reply Like
  • surplusmarketing
    , contributor
    Comments (2267) | Send Message
     
    It will be Z-E-R-O.

     

    But we will see.
    25 Jul 2014, 04:04 AM Reply Like
  • nickbritt1
    , contributor
    Comments (96) | Send Message
     
    Apparently a poor attempt at sarcasm.
    25 Jul 2014, 05:30 AM Reply Like
  • Ed Porter
    , contributor
    Comments (715) | Send Message
     
    Mind the gap!
    25 Jul 2014, 12:06 AM Reply Like
  • surplusmarketing
    , contributor
    Comments (2267) | Send Message
     
    Alibaba or Ali-whatever is my next SHORT.

     

    Simple.
    25 Jul 2014, 04:04 AM Reply Like
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