Amazon loss, but still grows revenues sharply!

It's been a busy couple of weeks with results been thrown at us both locally and in the US. On Friday we received results from Amazon which I will cover now.


As always Amazon is a tough one to analyze because still the company does not make meaningful money. I have explained this before so I will be brief. The company is not focused on profits at the moment, they are focused on getting as many people on their platform as possible and then be able to supply those masses with e-commerce services. I saw a very cool quote from CEO Jeff Bezos the other day: "Your margin is my opportunity."


Now that we know what the business is about, let's look at the numbers with more focus on revenues rather than earnings. Net sales increased 22% to $15.7bn. Operating income decreased 26% to $79 million. This resulted in a net loss for the quarter of $7 million or $0.02 per share. Despite these numbers the share price is up 27.43% in the last year giving the company a market cap of $136.7bn.


But this explains the loss. Amazon increased spending on technology and media content by $500 million for the quarter. The total came in at $1.6bn. This includes deals to stream movies and series in order to compete with Netflix. In very simple accounting terms had they not spent that amount of money and reported it as profits we would have a 10% operating profit margin from the sales of $15.7bn.


And that is why the company still trades at such a high price. And believe me the company is busy. Here is a very summarised list of projects they are up to at the moment. Deals with Viacom, NBCUniversal and others to provide thousands of TV shows to clients; TV show pilots launched by Amazon themselves; kindle services aimed at children; the Amazon App store; An Amazon currency to purchase apps and other things on the platform; Kindle Worlds which allows writers to publish their content on Kindle; Kindle Fire is now available in over 170 countries including China; features for the blind and visually impaired; the launch of an online market place in India; Goodreads, their book recommendations site reached 20 million members and lastly strong development of their cloud service.

Having initially seen the numbers in the headlines I must admit I started doubting whether this stock was still a good investment. But having read through the results in detail it has restored my confidence that this business will one day shoot the lights out with profits. There are just too many other opportunities to invest in at the moment, a great problem to have especially when your shareholders are patient. And I am still willing to be patient, hold.