- Amazon did not do as well as speculators hoped, and the stock fell back
- Amazon's business plan remains on-track to transform the worlds of computing and commerce
- There is still time to get back in Amazon stock.
Amazon stock lost $60 in a matter of minutes on January 28 after Amazon (NASDAQ:AMZN) reported earnings that “missed” analyst expectations.
The miss was modest and easily explained, but this is an unforgiving market. Earnings came in at $1.00/share, against estimates of $1.56. Revenue came in at $35.75 billion, which missed by $180 million. Most of the miss came down to that old bugaboo of U.S.-based companies, currency conversion.
This did not stop the Amazon bears from chortling, or sell orders from crashing. Once trading started Amazon stock again found the $580 level, but before the market opened on January 29 I saw trades move across the tape for as low as $555. Amazon stock closed at $587 on January 29th.
In fact, this was a one-day story. Expectations had been high enough to send the shares up $60 the day before the announcement, so in fact, the “bad” number only caused Amazon stock to retrace those steps, and the price by noon on Friday was within $1 of where the stock stood on the morning of January 28.
Still, if this is failure, give me failure. Sales for the year came in at $107 billion, against $89 billion a year ago. Without the foreign exchange losses sales would have been $112.5 billion, making Amazon the third-largest U.S. retailer, behind only Walmart (NYSE:WMT) and Costco (NASDAQ:COST).
But Amazon is not really a retailer. Amazon is an infrastructure company, retailing being just one thing done with it. Amazon Web Services, its cloud unit, brought in $7.9 billion in revenue during 2015, the company said, up 71% from a year earlier, and it had an operating margin of 28.5%.
The disruption this is creating for the rest of the computing industry is enormous. Cloud was once seen as a process, public infrastructure to be replaced by private clouds by now. Now Amazon’s proprietary AWS Application Programming Interface is an industry standard for cloud infrastructure, its design protected by copyright, and the evolution is not from public to private, but from infrastructure to Software as a Service, through rivals like Microsoft (NASDAQ:MSFT) and Salesforce (NYSE:CRM) that avoid competing directly with the clear market leader.
In a long press release announcing the numbers, CEO Jeff Bezos barely mentioned the online store, which still contributes most of the company’s revenue. This is where confusion over the company really begins because retailers are usually worth a fraction of their sales volume – Walmart is worth less than half its $485 billion in annual sales, because final retail margins are wafer-thin.
Bezos’ release was an attempt to disabuse investors of that notion, as Amazon now carries a $273 billion market cap on $107 billion in sales. Amazon.com is essential infrastructure – for entertainment rivals like Netflix (NASDAQ:NFLX) and for billion-dollar retailers. (Amazon delivered over 1 billion orders for other retailers during the year.)
The company is preparing to advance on all fronts in 2016. Like the Internet of Things at General Electric (NYSE:GE)? How about streaming music services like Pandora Media (NYSE:P)? Maybe payment services like Visa (NYSE:V) are your investment of choice, or delivery services like FedEx (NYSE:FDX)? Amazon is supporting or competing with all these companies, often both supporting and competing with them.
You have time to get back in. The hangover from Amazon’s “miss” is liable to remain for weeks. But the real lesson is that analysts are getting better at estimating the company’s numbers, and Amazon stock is more of a prime investment than ever.
I own it, and I recommend it.