- This might be the time to exit for short term investors in Amazon.
- Demand for earnings might outweigh growth, as the enormous apprehension about earnings growth catches up.
- If you're sitting on Amazon shares for the short term, now's the time to get out.
Amazon (NASDAQ:AMZN) reports earnings tomorrow and, if you are of a speculative bent and are sitting on a position in the Amazon stock, you might want to consider getting out right now.
This is partly because Amazon has had an incredible run over the last year. As recently as January it was trading as low as $290/share. The price at the end of Wednesday’s trade was over $485.
Many investors have long been suspicious of Amazon, because it deliberately avoids profits. It focuses instead on growth – growth into new niches and growth within niches. Amazon took what Google (NASDAQ:GOOGL) had learned about cloud computing on its own account and, after improving its own infrastructure, began re-selling that capacity, creating what is now said to be a business worth $60 billion.
The same has been happening in video. Netflix (NASDAQ:NFLX) was the big innovator here, building its $8/month service on Amazon’s own infrastructure. Now Amazon is competing directly with Netflix, but in place of its monthly fee it charges a yearly price of $99, which includes free shipping on physical products. Amazon is now a major provider of middle-of-the-road video programming, shows like the crime drama Bosch and the comedy series Alpha House. All these are available “free” to Amazon subscribers.
Prime is now the big driver of Amazon growth. Prime buyers are loyal to Amazon’s site, abandoning far fewer shopping carts. They’re also less price sensitive, accepting what Amazon’s pricing algorithms say is a fair price.
Expectations for Amazon’s latest quarter are modest, a loss of 15 cents per share, a “whisper number” of 9 cents, and $22.37 billion in revenue.
Amazon is a great long-term buy, but my guess is that, even if it beats the whisper number, the Amazon stock will collapse, the way that of Apple (NASDAQ:AAPL) did after it reported solid earnings earlier this week.
There are two reasons for this. There is an enormous amount of ill-will and distrust from retail investors about the quality and possible future of Amazon earnings. There are many who actually believe the stock is worthless, that it’s just churning numbers with borrowed money, and this sentiment is not disappearing.
Second, Apple fell. The market has really gone up, and traders are sitting on fat profits. Why not find some excuse – a weak forecast, a slowing growth rate, or any other imagined weakness – and send the stock down after hours? It would certainly be in keeping with recent market action, it would let traders cash out and come in at a lower price, and it would also offer those who sell now a bargain on Friday morning.
I may be wrong on this, but there is a herd mentality to action on big tech stocks these days. Where traders were buyers they want to be sellers, once they have profits. They have big profits in Amazon right now.
My guess is they sell Thursday night.