Amazon Plunges After Missing Q4 Revenue, Earnings As Concerns Emerge About Future Profitability

Tyler Durden's picture

For years, shorts would tear their hair out quarter after quarter, when AMZN would continue to bleed cash with relentless abandon, only to see the stock soar after earnings. Now, in what may be a perfect poetic symmetry, following the quarter in which Amazon's free cash flow soared to the highest in years, printing at $7.3 billion, or more than triple the year ago period...


... on margins that are becoming respectable on both a quarterly...


... and LTM basis...


... The stock is crashing by 12% at this moment:


It wasn't just that: one reason for the 13% plunge may be that in the holiday season in which many had expected that AMZN would take away market share from an imploding retail sector, revenue of $35.7 billion, a 22% increase, actually missed expectations of $35.9 billion, something AMZN has rarely done in the blockbuster for retail spending fourth quarter.

Another reason is that Wall Street finally got ahead of itself. By a lot: it was expecting AMZN to generate $1.55 in EPS. Instead, AMZN missed this by a whopping 30%, with a final Q4 EPS of $1.00 (more than doubling the year ago net income), on operating income of $1.1 billion (a nearly 100% increase from a year ago) which also missed expectations of a $1.24 billion number.

On the spending side, operating expenses increased 21% to $34.6 billion, making some question if the company's core business profits will not be swept by Bezos' many business growth ideas. The CEO's biggest challenge is balancing Wall Street’s thirst for profits against his own ambitions of using new technology - such as unmanned drones and intelligent household gadgets. Bezos is also eager to replicate his U.S. success abroad, including challenging Flipkart Online Services Pvt. for India’s fast-growing e-commerce industry.

According to Bloomberg, "the result was a surprise for investors who have become accustomed to Amazon’s ability to fuel sales by spending heavily on delivery infrastructure and new products. The key question is whether the Seattle-based company can readjust its investments in the face of weaker than anticipated sales. Still, Chief Executive Officer Jeff Bezos appears determined to show that Amazon can keep bringing in more profit and sales - he pulled back on spending last year to deliver a surprise jump in earnings and will be showing Amazon’s first Super Bowl commercial next week.

"Amazon reached this new level of profitability in 2015 that we hadn’t seen previously," said Kerry Rice, an analyst at Needham & Co. LLC. "If they don’t keep that trend going in the right direction, the stock goes down."

For now Amazon is not suffering too much in that regard: Prime memberships rose a whopping 51%, offsetting fears that Amazon's annuity cash flow stream may be throttled.

Curiously, not even the silver lining was enough to save AMZN: the company's cloud service, Amazon Web Services, generated sales of $2.41 billion, beating expectations of $2.37 billion, up 69% from the $1.42 billion a year ago, and generating income of $687, an impressive 28% margin, modestly shy of the $1 billion in $1.1 billion in retail profits across all of the company's other profit lines.

Finally, not even AMZN's guidance was all that bad:

  • Net sales are expected to be between $26.5 billion and $29.0 billion, or to grow between 17% and 28% compared with first quarter 2015. This compares with consensus expectations of $27.6 billion.
  • Operating income is expected to be between $100 million and $700 million, compared with $255 million in first quarter 2015. Wall Street expects $658 million

So yes, a good quarter, but not good enough, and one in which now that AMZN has entered profitability mode, suddenly expectations exist that this profit growth can sustain, and - judging by the crash in AMZN's price - that they won't.

Meanwhile, AMZN continues to grow and grow and grow, perhaps too much for its own good: as the chart below shows, while worldwide growth once again took a leg down, the number of employees at AMZN has now grown to an epic 230,800 up from "only" 154,100 a year ago.

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NidStyles's picture

Imagine that an increasing indebted nation can't keep up the spending.

HowdyDoody's picture

Amazon will never be profitable. Its accountants and CEOs like it that way.

Manthong's picture

Well, I ordered 5 things a couple of days ago..

Three of them showed up already..  

WTF else could one expect for not having to drive out to a store??

I am thinking about ordering a bulldozer with free shipping on Prime.

LowerSlowerDelaware_LSD's picture

" Concerns Emerge About Future Profitability"

When has this ever been a concern?  Why start now?

847328_3527's picture

Ebay likewise took a beating today:


Stock price: EBAY (NASDAQ) $23.13 -3.29 (-12.45%) Jan 28, 4:00 PM EST


FreeShitter's picture

Gee, some folks already this tisk AMZN up nearly 9% today on bullshit I gotta sell my soul to the fucking devil to get this kind of insider info or what.

gatorengineer's picture

up 9% today down 12% after hours.... New PE still well over 200 for a retail organization.....

adr's picture

Wake me up when the fucking thing is down to $40 where it belongs. The stock was up $80 in one week on the back of ABSOLUTELY NOTHING!!!!

The past $300 has been total bullshit. But nobody cares. Nobody investigates the accounting, nobody audits the books.

A six year old that read taxes for dummies could find ten thousand things to indite Bezos with.

arby63's picture

And it really doesn't matter because when he speaks the Feds listen. He is essentially a Fed because these "miracle" companies don't just have money thrown at them without some type of pretense. In the case of Amazon, I am sure that Bezos' time as a Wall Street IT guy was rather helpful. He was also a hedge fund guy.

Only point here being is that we have seen a series of these "miracles" over the last 20 years and they all have many common threads: easy money from close-knit investors and relations. I suppose that's nothing new but the near-merging of government and private business is getting awfully questionable.

L Bean's picture

Amazon is soviet in nature, much like Wal-Mart. There outta be an index, for all it reflects on the real state of The Folks. 

Long smoke and mirrors.

VW Nerd's picture

Amazon is suddenly unable to shrug off earnings??  Until now, funds were willing to throw money at this company with a P/E in excess of 200 without batting an eye.  Now it matters??  Crazy....

css1971's picture

p/e 511 at the moment. IIRC. Hey it's down from 3000.

Yen Cross's picture

  It couldn't be that insane price/earnings multiple.

Pheonyte's picture

You've got it all wrong. Since 2008, it's the profits to earnings ratio that matters.

Yen Cross's picture

 Don't forget Non-GAAP, one time write offs, and stock buybacks.

 * And the occasional regulatory TAX... Palms must be greased...

 Ohh wait, that was JPM thread. XLF= * caugh* caugh, financials.

css1971's picture

Just wait till they have to idle all that capacity. It's gonna be a laugh a minute.

Donald J. Trump's picture

Some folks got Amazoned today.  I'm tired of hearing those phrases but it seemed appropriate.  The fuckers announced a music service to spike the share price right before announcing their quarter cause they knew it would tank it.

khnum's picture

Attention K Mart shoppers,no consumer spending is a royal flush which beats a print to infinity full house

holdbuysell's picture

Where is the $5.4B in cash flow from operations for Sep 15 quarter coming from?

Looking at the cash flow statement, one sees $2B in cash flow from ops.

Is there another definition of cash flow operations in use here?

ThroxxOfVron's picture

Bezos re-uses those rockets so these can be counted twice!


"Our distribution centers will quickly deliver your Prime purchases to da Moon!"

NoWayJose's picture

Amazon had a chance to be profitable using massive warehouses, a well thought out web site to display products and get customers to buy things they don't need, and an efficient mailing system. Instead, they expand into one hour delivery with high overhead. Walmart is closing these smaller close-to-the-customer stores because of low profits and high costs. Amazon is attempting a similar thing - but is ADDING the overhead for delivery! The model is doomed.

Wild Theories's picture

not until they've squeezed out more competition and gained more "organic growth" first

sun tzu's picture

Their shit is overpriced now anyways. Ebay and Wallyworld are much cheaper

i_call_you_my_base's picture

Their stock tanked because they didn't stroke investors and pump their numbers. They actually invested in the business and are trying for longer-term growth. This simply shows how bullshit wall street and being public is.

brada1013567's picture

How do you tell people your the guy who bought it up $52 at the close. That's kinda like saying hey I am insane.

moonmac's picture

If liberals weren’t such disgusting hypocrites the medical marijuana industry and Amazon would be unionized by now.

Panic Mode's picture

Simple. Fire everyone and buy back shares.

JuliaS's picture

I doubt firing robots and laying off drones would affect the bottom line.

adr's picture

Future Profitability?

THE COMPANY HAS NEVER TURNED A PROFIT!!!!! THEY ARE STILL BILLIONS IN THE HOLE FROM 20 YEARS OF OPERATING LOSSES. Just because they turned a minuscule profit during a few quarters in the past 20 years doesn't mean the company is profitable or will ever be.

Hello LA LA LAND, I'd like a ticket to enter please because I'm sick and tired of living in reality.

surf0766's picture

The are the model of everything that is wrong. Complete P.O.S.

RopeADope's picture

Amazon takes the excess fiat from society and performs a function that has utility to the FSA.

Stop thinking about Amazon like you would an old-school American company.

Don't feel bad, I fell into the same trap you did, until I realized Amazon was not an American idea.

gatorengineer's picture

MSFT is almost a bigger shit show right now.  PE to 35 on huge revenue drop, no new products on the horizon... Wow...

nidaar's picture

On the contrary, they exceeded Wall Street expectations across revenue, operating income and earnings per share. 

lasvegaspersona's picture

Dammit people...hear the sizzle..ya hear it? that sizzle....

...steak?...oh, we don't even sell steak....

R.R.Raskolnikov's picture

Sjees! I just initiaded a long position. I thought that because everyone is buying I will get rich by the end of the year. Now, more people need to buy.

P.S. Don't forget that the economy is b00ming to the bottom.  Chicago PMI: 42.9 & Durable Goods Orders: -.5.1%. Nope, everything is still fine!

DeepFriedLizards's picture

People like I who live in rural Alaska love Amazon.  I just received 6 XL dog cages for $46 a pop (a very good deal) with free delivery.  Just the shipping alone would have cost me $60 a cage from the same manufacturer.  I hope they're in business forever. 

Magnum's picture

Enjoy those dog cages Lizardboy

moonmac's picture

Clothing sizes are now made to fit little gay wad meth heads. I’d have to return 90% of my pants and shirts if I shopped online. Amazon can’t compete with brick and mortar.

Magnum's picture

The sham of Amazon.  

In this day and age it's very easy to offer something for sale online, package and ship it, so why does Amazon need to be the middleman?  They have massive employee base that tinkers around improving their website, but who needs that when information is so readily available online anyway?  Think about it, Amazon spends a ton of money on things that don't add value for the consumer, plain and simple. Gee look their website offers "reviews" BFD.  

It's only a matter of time before this gets sorted out in the free market.  In the meantime Amazon, in my opinion, is working nonstop to prevent small merchants from being in business, with all kinds of dirty tricks.  Fedex, UPS and USPS executives can likely tell some stories.

Another issue -- Most people have no idea that overseas there are counterfeits, does Amazon want to curb their suppliers from shipping fake goods?  Doubt it.   I've personally received counterfeit products via Amazon. Order anything from Amazon and who knows it's authenticity.  Check how easy it is to be a seller on Amazon, so who knows who those people are?

Take a good old fashioned hard look at this company overall and it isn't great.

ronin12's picture

"Gee look their website offers "reviews" BFD."


"I've personally received counterfeit products via Amazon. Order anything from Amazon and who knows it's authenticity."


Maybe you should have read the reviews Einstein.

Magnum's picture

Einstein. Let me explain it this way.  Imagine you want to buy a set of "Sony Model XYZ Headphones".  They have "great reviews".   You get the headphones and they are counterfeit and fulfilled by Amazon.  Does that mean everyone else who ordered those got a counterfeit, Einstein?  I heard Rolex makes great watches Einstein.

847328_3527's picture

I find their stuff authentic. Never had a problem and it's usuallyu much cheaper then driving around sorting thru flooded aisles and finding the right style, size, etc...not to mention the dangers of parking lots these days even if you are not in SomaliLand (Mpls).


Minneapolis Muslim migrant charged with brutally raping 10-year-old girl


The attack occurred Sunday evening in an apartment complex in the city’s Cedar Riverside neighborhood, also known as “Little Mogadishu” for its high concentration of Somali refugees imported from United Nations refugee camps in Africa.

Abdi allegedly followed the girl out of an elevator. He asked for her name and offered his hand to her. She shook his hand and Abdi refused to let go. Police said he proceeded to rape the girl in the hallway of the apartment building.

Authorities used video surveillance footage to help track down the suspect, who was arrested about 24 hours later on Monday in St. Paul.

The U.S. government has resettled more than 110,000 Somali refugees since the early 1990s and shipped in another 8,858 during the most recent fiscal year, which ended Sept. 30, according to U.S. State Department data.

“Lucky taxpayers,” Corcoran continued. “We paid for his resettlement, surely his welfare and now we will get to pay for his long imprisonment.”

I'll continue buying online, thank you!

Magnum's picture

Probably over 90% of their products are authentic, but it's become a big flea market with what appears to be any Tom Dick or Harry able to sell at Amazon as a "merchant".  Those merchants pay fees.

Online shopping is great but one can almost always find a better deal for the same item sold at Amazon, from other merchants who don't have the overhead.  

Right now most people think Amazon has the best prices but wait until that myth is no longer accepted.

Salsipuedes's picture

Jeff Bezos is short. I thought you should know...

NuYawkFrankie's picture

re "AMAZON Plunges..."

Cry me a RIVER....

yogibear's picture

LOL, no kidding. 

When the consumer collapses so does Amazon.