Seeking Alpha

Amazon now -10.3% AH; CC touches on losses, AWS, video spend

  • "We have a long-term view ... We’re not trying to optimize for short term profits," states Amazon (NASDAQ:AMZN) CFO Tom Szkutak on the Q2 CC, repeating a mantra his company has uttered in some form for years. Judging by the reaction to the company's EPS miss and guidance for a sizable Q3 op. loss, investor patience seems to be wearing thin.
  • Szkutak admitted Amazon Web Services' near-term growth has been hurt by an ongoing cloud infrastructure price war with Microsoft and Google - while North American "Other" revenue was up 38% Y/Y, it fell 3% Q/Q, and Y/Y growth decelerated from Q1's 60%.
  • He also suggests Amazon's Q3 bottom line will be pressured by a "significant" increase in video content spend. The company plans to spend $100M on original programming alone, as it tries to counter Netflix's big content investments and keep Prime renewal rates high.
  • On the bright side, Szkutak says Prime subscriptions are still growing well following this year's $20 price hike, and that Q2 subscriber adds topped year-ago levels (no specific numbers, as usual). CIRP survey data appears to back him up.
  • Regarding China, he states Amazon has "a lot of interesting things" planned, and will continue investing in the Middle Kingdom. Alibaba remains the Chinese e-commerce market's 800-lb. gorilla.
  • Q2 results, guidance/details.
Comments (29)
  • ReligiousWacko
    , contributor
    Comments (1094) | Send Message
     
    So do people still think AWS will eventually be gusher of profits? Is that when MSFT and GOOG declare bankruptcy ?
    24 Jul, 07:44 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1294) | Send Message
     
    Cloud is the ultimate commodity invisible and infinitely replaceable. I'm not sure why Google/Amazon/ Microsoft invest so heavily in it. Spend billions investing in infrastructure you make razor thin profits on only to have that investment be worthless in 2 years.
    24 Jul, 09:38 PM Reply Like
  • Dantes_Will
    , contributor
    Comments (335) | Send Message
     
    I'll give Amazon about a year or two max before investors start to abandon the company in droves, tank the share price and force Bezos to divest his money burning pet side projects.

     

    Hell, the Fire Phone is pretty much DOA, so that'll take care of itself, at least.

     

    24 Jul, 10:07 PM Reply Like
  • ClassicLib
    , contributor
    Comments (113) | Send Message
     
    Think beyond IaaS. These companies are investing heavily in their clouds because they also use them as an enablement platform for their own apps (SaaS, etc). Microsoft Office365 is a great example of this.

     

    I do agree with you on the margins though.
    24 Jul, 10:58 PM Reply Like
  • silverscreen
    , contributor
    Comments (189) | Send Message
     
    It is not the cloud in and by itself that MSFT cares about. It's all the tie-ins that they will benefit from, especially on the enterprise space. AMZN on the other hand really has nothing to gain.
    24 Jul, 11:44 PM Reply Like
  • ReligiousWacko
    , contributor
    Comments (1094) | Send Message
     
    Dennis .. it makes sense for these companies to provide these services. As other person mentioned, this is especially true if you can bundle value add software and/or services. But there is definitely a commodity, low margin aspect to this business. A few years ago, many Kool-Aid drinking fools were saying AWS was yet another reason AMZN should have high valuation since it would eventually drive tons of earnings. I assume that now only the most clueless still believe that nonsense.
    25 Jul, 12:07 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (8526) | Send Message
     
    I used to think that Eddie Lampert wants to be Jeff Bezos.

     

    Now I think Jeff Bezos wants to be Eddie Lampert.

     

    If so, he is doing a good job so far.

     

    (NASDAQ:AMZN)...strong sell.
    25 Jul, 05:39 AM Reply Like
  • idkmybffjill
    , contributor
    Comments (1635) | Send Message
     
    Eddie Lampert still wants to be Jeff Bezos. Take a look at SHLD's results the last couple years...
    25 Jul, 04:46 PM Reply Like
  • rambler1
    , contributor
    Comments (446) | Send Message
     
    Fine, then the stock price gets adjusted down until this thing finally performs, and doesn't just grow with little or no earnings.
    24 Jul, 08:03 PM Reply Like
  • wyostocks
    , contributor
    Comments (7867) | Send Message
     
    Next week it will be up 10%.
    No bubble here folks, just keep buying and bidding it higher.
    24 Jul, 08:30 PM Reply Like
  • RS055
    , contributor
    Comments (2325) | Send Message
     
    Next week the FOMC meets. I expect to receive definitive investment advice from Yellen Capital Management. Just a wild guess but I think they may say to go Long Online merchandising and Short Small Cap biotechs. but thats just a guess - have to wait until Wednesday 2:PM. I'll have my fingers poised over the keyboard at 2pm - so I can quickly implement whatever investment FOMC recommends. Anyhoo- if it does'nt work out, the govt is gonna pay for my unemployment , so its a win-win.
    24 Jul, 09:47 PM Reply Like
  • meta9999
    , contributor
    Comments (181) | Send Message
     
    I presume you're talking about AMZN when you say it will be up 10%.... take a look at a long term chart, it isn't pretty. Since the stock peaked at $415 its been a roller coaster ride down with lower highs and lower lows. .... not the kind of thing you want to put your money in, unless of course you are just gambling.
    25 Jul, 12:10 AM Reply Like
  • Budavar
    , contributor
    Comments (1387) | Send Message
     
    This house of cards is about to crash.

     

    Time + time again I tried to issue a wee warning.

     

    Time + time again I recommeded again + again, here + elsewhere, a

     

    >>>>>&g... from AMZN into AAPL =
    when first published in April
    AMZN was at $338 = now $304
    APPLE pre-split 7 for 1 was at $568.

     

    The worst is yet to come.

     

    Another Q with a LOSS +
    BABA's huge IPO.

     

    The true value of AMZN stock is $10. Repeat $10.
    That is when you multiply AMZN's EPS last year of $0.59
    with the 16 multiple applied to the EPS of the Dow stocks =
    the cream of American business,
    you arrive again at that pesky $10 valuation.

     

    Ladies + Gentlemen = put on your best parachutes before it is too late.
    PLEASE!
    24 Jul, 08:33 PM Reply Like
  • James Sands
    , contributor
    Comments (2060) | Send Message
     
    Budavar,

     

    Let's be reasonable and assign Amazon a P/E of 35 and give it a price of $20. Growth does matter. eBay has been getting pressured because their growth is slowing. It all fits together, revenue growth leading to increased profits. Ideally, one does not exist without the other.

     

    Unfortunately though, stocks do not typically trade on the past, but rather the future. This is why a company like Precision Castparts (NYSE:PCP) may have a P/E at 20 now, but will most likely get to your favorite 16 level in a couple years. But Amazon and many other higher growth companies will most likely not trade at a P/E of 16. This statement is too simplistic and unreasonable.

     

    Risk is usually warranted to get to a better valuation over the long-term. Union Pacific (NYSE:http://bit.ly/PnWsFH) is a great example this year. One could have invested near $84/share in January with a P/E near 17-18. Now the P/E is approaching 16 and in a couple years, may be near 13. Facebook is a better high-growth example with a P/E near 90 now near 60 assuming a price in the high $50s.

     

    It is fine to contest Amazon's profitability, but it should be done in a realistic and reasonable manner.

     

    And Alibaba Group (Pending:http://bit.ly/WGxKpg), speculators will talk this company up to the detriment of many investors willing to listen.

     

    Good day sir!
    24 Jul, 08:51 PM Reply Like
  • DWBowers
    , contributor
    Comments (1227) | Send Message
     
    I agree, Amazon is a house of cards that has been bid up to tulip bulb levels. They jumped the shark with the introduction of their phone. They're a marketing and logistics company, not a high tech manufacturer like Apple.
    24 Jul, 11:12 PM Reply Like
  • meta9999
    , contributor
    Comments (181) | Send Message
     
    Seriously, how can you assign any PE to AMZN? Management is content to spend whatever it takes to increase sales and market share. Sometimes they will make money, sometimes they will lose money. They really don't care about earnings. That's the way it will be until they either bite off more than they can chew or they are able to increase prices, and that could be many years away.
    25 Jul, 12:18 AM Reply Like
  • psychological-dividends
    , contributor
    Comments (738) | Send Message
     
    Amazon is a house of cards?
    More like a house of cards sitting next to a blowing fan.

     

    But some people like living on the edge.

     

    The true test will be when Alibaba becomes large enough to really introduce competition for Amazon, particularly with its better operating efficiences. Then we'll see if Bezos can hold on.
    25 Jul, 01:10 AM Reply Like
  • RS055
    , contributor
    Comments (2325) | Send Message
     
    I sometimes lose a sock in the washer. I had a non matching sock - sold it to my wife for $5 million.
    Fortunately she also had a non matching sock that I bought from her for $5 million.
    Now we are wealthy. Yellen is willing to lend us money against our socks . We are even thinking of taking our pair of socks public , maybe sell a 10% interest for $1 million . Wall Street firms are competing for the business.
    Maybe we should set up a charity to help the less fortunate.
    24 Jul, 08:50 PM Reply Like
  • DWBowers
    , contributor
    Comments (1227) | Send Message
     
    love your comment! Wall Street gets all excited over the most ridiculous things.
    24 Jul, 11:10 PM Reply Like
  • Mark Krieger
    , contributor
    Comments (3930) | Send Message
     
    Give Paulo Santos credit for calling AMZN's earnings debacle correctly. We all knew, he would be eventually proven right. His relentless series of analysis and insights, paid off for those who listened and took his advice. Thank you Paulo!
    24 Jul, 09:07 PM Reply Like
  • Dennis Baker
    , contributor
    Comments (1294) | Send Message
     
    Paulo had the business end of things right, but he suggested shorting the stock when it was around $200/ share which was foolish. He was dead right that folks should avoid investing in it, but he was dead wrong about the short.
    24 Jul, 09:42 PM Reply Like
  • King Rat
    , contributor
    Comments (654) | Send Message
     
    I do not understand why Amazon does not just use some of its capital to buy profitable businesses in order to turn a profit. There are tons of profitable businesses Amazon could buy using stock. They can be left as silos just for the profits. At least that would help alleviate some of these losses.
    24 Jul, 09:09 PM Reply Like
  • DanoX
    , contributor
    Comments (2647) | Send Message
     
    Amazon doesn't have the cash to buy a real good profitable company.
    24 Jul, 09:24 PM Reply Like
  • piggysun
    , contributor
    Comments (145) | Send Message
     
    Think about the large-cap size, which other company can grow revenue at the same speed? Don't worry about earnings, not the case for amazon. Amazon is growing at the speed of small/middle cap.
    24 Jul, 10:52 PM Reply Like
  • psychological-dividends
    , contributor
    Comments (738) | Send Message
     
    I think the answer to your great question possibly lurks with Jeff Bezos himself. I don't think he cares about finding these types of businesses or finding profits, he just wants the happiest consumer possible.

     

    Now that will produce happy consumers as long as he can maintain it, but investors could find tragedy somewhere in the future.
    25 Jul, 01:09 AM Reply Like
  • casper77
    , contributor
    Comments (61) | Send Message
     
    True...it is hard to put a price on the happiness of millions of people..Perhaps AMZN investors should just see this as an act of charity.
    25 Jul, 07:15 AM Reply Like
  • DWBowers
    , contributor
    Comments (1227) | Send Message
     
    About time this bubble burst. The valuation has been ridiculous for too long.
    24 Jul, 11:08 PM Reply Like
  • bobelouis
    , contributor
    Comments (66) | Send Message
     
    "$100 million dollar spend on original content in Q3".....won't hit bottom line when spent it will be capitalized according to any normal accounting rules.....this is blowing smoke to the unknowing, all these "investments" aren't directly hitting the bottom line and causing these growing pain losses.....they are just building up to hit in later quarters.......the result of these prior investments maybe the cause for the growing momentum of losses.....so even if they could stop them now the unwinding of these "investments" (actually just deferred costs) will take so time to filter through the income statement.....
    24 Jul, 11:17 PM Reply Like
  • leopardtrader
    , contributor
    Comments (909) | Send Message
     
    Look for AMZN above $400 in about 2~3 months or less.
    25 Jul, 04:16 AM Reply Like
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