As with Apple, so it is with Amazon. The problem with giant, dominant-in-their-fields companies that grow year after year, is that expectations are high, VERY high. Investors can be disappointed even after storming results.
For Apple this week, it was all about the blind panic that iPhone sales might slow down. For Amazon yesterday, it was a case of snapping investor patience. Yes, sales and profits surged, but Amazon has sacrificed profits for years as it focused on carving out its leading position in the global e-tail sector. It gave its investors plenty with this set of results but they wanted more.
For the latest quarter, despite its biggest-ever profit and full-year sales at a record $100bn, it missed analysts’ expectations and the share price fell 15% late Thursday. Ouch! But given that the firm’s shares urged in 2015 and its value more-than-doubled to over $300bn, a temporary wiping out of $30bn in value can probably be taken with a (relative) pinch of salt.
So what was the good news? Well a 22% surge in revenue to $35.7bn and profits of $482m (more than the last 15 quarters put together) is no mean feat and perhaps investors were rather harsh in punishing the shares. The Holiday season quarter saw so many rivals haemorrhaging sales in the face of warm weather, intense price competition and a consumer who felt he/she was in the driving seat that Amazon’s performance has to be applauded.
You see, those years of focusing on sales growth over profits are paying off. Its retail sales have grown strongly, as has its credibility. Amazon is now as much of a go-to site for fashion shoppers as for those buying books, DVDs and space heaters, which is a testament to its investment in fashion and accessories.
But, importantly, other important business units are growing even more strongly. Amazon Web Services (AWS) sales soared 69% to $2.4bn and operating profit there was up almost threefold to $687m. The company is expanding AWS Cloud globally and is entering new markets, especially in Asia Pacific.
Growth is still coming at a cost (operating expenses rose over 20% to $34.6bn in the quarter with shipping costs up 37%) but the fact is that Amazon is getting stronger as every quarter goes by. If I had some cash to spare, I’d be buying its shares today!