Amazon results, first loss in 9 years

Yesterday Amazon reported its first loss for a quarter in 9 years as the company continues to invest in the future at the expense of current earnings. Net sales increased 27% to $13.81bn compared to $10.88bn this quarter last year. Because earnings have been scarce, sales have been the main gauge of growth for this company so this figure is important to note. The operating loss equated to $28 million compared to the $79 million profit made last quarter. This equated to 60c a share.


It is hard to value a company like this because it is so focused on growth. Which of course is a good thing as an investor of a specific kind. A good operator should not worry about a share price in the short term. Big spending was done this quarter with 2 new massive warehouses being built in Los Angeles and San Francisco. This was done with a goal of same day deliveries in mind. On top of that they are selling their signature product, the Kindle Fire at breakeven in order to lock in clients.


With that said analysts expect earnings to come in at a measly $1.86 in 2013. I say measly because the stock trades at $222. But expectations are for this year to be the absolute bottom of margins. Forecasts for 2014 see earnings coming in at around $5 a share, a huge jump from the year before.


For me, and I know its unconventional, I feel you need to get a feel for this company and without looking at the numbers, logically assess whether this company is going print money in a few years time. I am an Amazon customer, I love buying books from their site and reading it on my iPad via the Kindle app. Reading is never going to go out of fashion and the convenience of ebooks is a winning business model. Amazon have first mover advantage here with most publishers committed to their site. Even if they do take 70% of the sale price (I heard this from someone who researched selling his book on the site). Wow that is huge.


Online retailing is huge. As a South African who is fairly technology astute it is fast becoming a way of life. Judging by the stats I have read, in the US it already is. In a huge way. But it is a fickle business. Clients want trust and efficiency. On the day deliveries and a very sophisticated payment system will maintain Amazon's position here. I am not too worried about current earnings. Steve Bezos is very impressive. He reminds of Steve Jobs, passionate and not fazed by criticism from impatient investors. It is not for everyone though, doesn't expect dividends anytime soon and patience is needed. Coming from our fairly conservative approach, I would call it a hold.