Amazon Is Still Growing 20%

Retail

Published: October 25, 2014 9:00 am

Last Updated: October 25, 2014 11:15 am

One of the tenets of business management is that it is easier to cut costs than to drive extremely strong growth. Investors who pushed Amazon.com Inc.’s (NASDAQ: AMZN) stock lower after its earnings report seem to have forgotten that. CEO and founder Jeff Bezos can pull in costs, particularly on some of his failed projects, and probably substantially improve margins. In the meantime, he has something very few companies with a $75 billion annual revenue run rate have. Amazon’s revenue is still growing at 20%.

Amazon’s most recent earnings report knocked its shares down 8% in one day to $287, a far cry from its 52-week high of $408.06.

The reason for the catastrophic plunge:

Net loss was $437 million in the third quarter, or $0.95 per diluted share, compared with net loss of $41 million, or $0.09 per diluted share, in third quarter 2013.

Looking ahead to results for the current quarter:

Operating income (loss) is expected to be between $(570) million and $430 million, compared to $510 million in fourth quarter 2013.

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Revenue growth is expected to slow, but it could still increase at a pace close to the most recent quarter, based on the high end of Amazon’s forecast:

Net sales are expected to be between $27.3 billion and $30.3 billion, or to grow between 7% and 18% compared with fourth quarter 2013.

The focus of all Amazon earnings releases is a litany of achievements, none of which is attached to any revenue. Bezos is known for his secretive nature and boasting about the abundance of new projects.

In terms of costs Bezos could cut quickly, there are the high sums the company likely pays for programming in the expectation it can compete with similar enterprises at Apple Inc. (NASDAQ: AAPL) and Netflix Inc. (NASDAQ: NFLX). Some indications suggest that Amazon’s Fire smartphone has not sold well. Is it any wonder that a product up against Apple’s iPhone and Samsung’s suite of smartphones might struggle? Amazon also competes with several large tech companies in the enterprise cloud space. The revenue of this segment has been hurt by the fact that these services have become a commodity in a crowded field.

Bezos has a great deal he could cut to swing Amazon to a profit. Maybe the beating he has taken from Wall Street will move him in that direction.

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