Earlier today, business and tech publications fawned over news that Jeff Bezos surpassed Bill Gates as the richest man in the world. This was predicated on Amazon‘s stock steadily climbing ahead of its quarterly earnings report.
Now the company has published its results and things are a bit less rosy. While Amazon surpassed revenue expectations, hitting almost $38 billion, profits weren’t so great thanks to heavy investing in multiple areas. Analysts expected Amazon’s earnings per share to hit $1.42. However, it reported only 40 cents. That’s a 77% slump. The stock is now falling in after-hours trading.
Is this the end of the insane stock rise that led to Amazon exceeding $1,000 a share? Well, it could certainly put a damper on things. The company is absolutely doing fine. Amazon Web Services, one of its rising business units, exceeded expected revenue, hitting $4.1 billion.
But Amazon is spending a lot of money and not bringing in the profits Wall Street so badly wants. “If the profit slump affects the stock performance,” writes Forrester analyst James McQuivey in an email, “it will be because it finally gives investors something specific to pin Amazon down on.” Yet this is what Jeff Bezos has been doing since the beginning—investing heavily and keeping margins thin in the name of scaling. McQuivey says the myriad Amazon product and service investments is what caused Wall Street’s enthusiasm in the first place, pointing to its Echo platform and AWS business.
But investors probably aren’t too happy right now. “The short-term slump will dampen their enthusiasm for now, but it’s uncertain how long that dampening effect will continue,” writes McQuivey
Amazon’s stock may very well rebound tomorrow. Or this could be the start of a cautionary tale about whether the company’s performance jibes with what Wall Street wants.CGW