You really have to hand it to Jeff Bezos and Amazon, which seem to continuously defy reality — and gravity. Amazon just announced its fourth quarter earnings, and if you listen to the press, you’d think it was another home run, and if you are watching Amazon trade after-hours, you’d think this is the most buyable stock since the last time MG wrote about APPL. Amazon is up nearly 10 percent since the market closed and, as Reuters points out to wit, the stock hit a record high on January 25th.
In part that’s because, yes, Amazon is the Walmart of the Internet, an the eCommerce giant. Thanks to network effects, it’s impossible to ignore. In fact, I’m using it to buy a tinfoil hat right now. The other contributing factor is, of course, the fact that Amazon increased its revenues, or global sales, by 22 percent to $21.27 billion in the fourth quarter.
That’s huge, right? The list of companies doing $21 billion in revenue in the fourth quarter isn’t long.
Cue the confetti.
Those who regularly have the distinct pleasure of listening to Amazon’s quarterly conference call for investors know that the company rarely says anything of substance in these calls. Usually, executives deflect questions, reading canned lines and sticking to the appropriate PR speak. But this quarter’s investor call may have been the shortest in history.
That’s probably because Amazon’s press release only tells one side of the story, and executives probably aren’t too eager to respond to any of those pesky naysayers. Here’s why: In spite of its $21 billion in sales, Amazon underperformed compared to analyst’s expectations. Of course expectations were high thanks to the usual holiday shopping bump for retail and eCommerce, but Amazon was expected to hit $0.27 EPS and $22 billion in revenues, and Amazon instead underperformed, coming in at $0.21 and $21 billion respectively.
That may not sound like a lot, and Amazon executives clearly think there isn’t much to be worried about, especially considering the company has $8 billion in cash. That’s nothing to scoff at, clearly, but there’s also the fact that the company’s net income decreased by 45 percent in the fourth quarter and growth is slowing. Amazon saw just $97 million in net profits in Q4. Yes, $97 million. That would be a big win for a company with $1 billion in revenue, but I’m probably not going out on a limb to say that it’s a red flag when you’re doing $21 billion.
If you look at the profit/loss graph in Leena’s post from earlier today [also included at the bottom of this post], one sees that Amazon hasn’t tallied more than $177 million in profits … well, for quite some time.
What’s more, as Zero Hedge points out, it’s almost comical that Amazon’s stock jumped after-hours. The irrationality of the markets in top form. The stock shot up this afternoon even after Amazon lowered its top-line guidance, projecting sales of between $15 to $16 billion, along with operating income.
On top of that, Amazon’s physical book sales had the slowest growth rate it’s seen in the last 17 years. Of course, thanks to the new age of eBooks and its quarterly increases in revenue, Amazon has continued hiring, growing its staff to a record of 88,400 in 2012. Meanwhile, global net sales saw the slowest year-over-year growth in recent memory, down 30 percent from Q3 and down 34 percent from Q4 2011.
But here’s the real kicker: As Zero Hedge and The Wall Street Journal have pointed out, the company’s net income is “now officially negative,” or $49. From Zero Hedge, that means that “as of this moment, the company with the idiotically high PE has an even more idiotic N/M PE.” In other words, N/M represents the correlation between the company’s market cap and its net income, or P/E (Price-to-Earnings), which is now negative.
For the year, the company reported a loss of $39 million, or 9 cents a share, compared to net income of $631 million, or $1.37 a share, in 2011. Incidentally, that means the company doesn’t actually have a trailing-12-months price-to-earnings ratio, since there were no earnings for the past 12 months.
Yep, you read that correctly. There were no earnings for the past 12 months. Or P/E is now negative. Take your pick.
HUZZAH! Hooray! Take my money, please. Take it!
For some reason, the fact that Amazon is dealing with 1.9 percent margins, halting guidance, slowing growth, earnings and income misses and tiny profits seems not to matter to investors. People continue to buy Amazon stock, and the stock market at large continues to push higher as the Fed continues dumping money into banks instead of lending. But, don’t worry, Paul Krugman says everything is going to be fine. Phew.
Well, you’ll have to pardon me, Paul, but I think I’m going to go against the grain on this one and offer the world’s slowest slow clap to Amazon while continuing to hoard all of my cash under my mattress and consider a move to Antartica. Next thing we know Bitcoins will be the new standard.
I know Jeff Bezos has a giant brain and everything, but it’s hard not to look at Amazon earnings, mixed with the overall macroeconomic conditions and not feel slightly to moderately nauseous. Or like you need a strong drink.
More in Leena’s coverage here.