Amazon Surges After Hours On After-Tax Accounting Gimmick, Cash Burn, Collapsing Margins, And Negative Guidance

Tyler Durden's picture

 

Either the algos are getting really stupid, or nobody cares at all about the quality of earnings any more. Case in point - Amazon, which was expected to post revenues and EPS of $12.9 billion and $0.07 came up with a revenue of $13.18 billion, hardly breathtaking if this came entirely at the expense of margins as has been the case in the past year, yet the one item that is sending the stock surging after hours on yet another short covering squeeze in which people cover first and ask questions later, was the EPS which came at $0.28. Amazing. Only problem is that the EPS, which was $130 million equivalent, was based on $41 million in actual net income from continuing operations, or $0.09. Hardly the stuff sending stocks up 10% in after hours. What accounting for the balance? An after tax adjustment amounting to $89 million coming from Equity-method investment activity, or the oldest accounting trick in the book, which alone added $0.19 cents to the EPS number, or about 95% of the entire EPS beat. What is surely not driving the AH spurt is that company's guidance for Q2: "Net sales are expected to be between $11.9 billion and $13.3 billion, or to grow between 20% and 34% compared with second quarter 2011. Operating income (loss) is expected to be between $(260) million and $40 million, or between 229% decline and 80% decline compared with second quarter 2011." So... actual profit before after tax accounting gimmicks may be negative, but at least they will make up for it in volume, right? Or inverse cash: in Q1 the company burned $3 billion in cash, bringing its cash load down from $5.3 billion to $2.3 billion. One final thing that is not causing the10% spike after hours is the operating margin: the company made $192 million in income from operations on $13.2 billion in revenue, or 1.5% profit margin, compared to what was considered abysmal 3.2% last year.

The only chart that matters: Amazon operating margin. Speaks volumes.

Don't believe us? Check for yourselves.