Amazon and Its Admirers Shrug Off Report of a Loss as Sales Keep Climbing

If Amazon were an ordinary company, investors would long ago have strapped its management to a rocket ship and sent it far, far away.
Amazon said Thursday that it lost money in the third quarter, continuing a trend of unimpressive earnings reports for the retailer. Similar disappointments are causing carnage at some of Amazon’s land-based electronics competitors. But Amazon’s many fans seemed largely unfazed.
The earnings report, released after the market closed, sent Amazon shares down as much as 9 percent in after-hours trading, but they quickly recovered. The stock hit a record high earlier this year, and it trades at an astronomical price/earnings multiple.
What separates Amazon from the competition is that it is not trying to make money. It is instead trying to grow as fast as it can, something it has been doing successfully for 15 years. What was once a cute start-up is now one of the country’s biggest retailers.
Third-quarter revenue was $13.8 billion, a little less than the $13.9 billion that analysts expected but up 27 percent from 2011.
Despite all those customers snapping up Kindles and “50 Shades of Grey,” the company had warned that a loss was coming. Amazon said it lost 60 cents a share in the third quarter, but more than half of that was from its investment in the daily deals site Living Social. The consensus estimate was a loss of 8 cents. Amazon earned 14 cents a share in the third quarter of 2011.
In a conference call with analysts, Tom Szkutak, Amazon’s chief financial officer, declined as usual to shed much light on the company’s plans. With regard to the persistent rumor that Amazon will open some pop-up stores during the holidays to sell Kindle devices, for instance, he said that the company’s current practice of selling through other retailers is “not really a driver of our business.”
Amazon’s strategy of selling as cheaply as it can may be tough on its margins but it is tougher on competitors. Radio Shack missed its earnings forecasts this week, prompting doubts about its viability. The specialty home appliance and electronics retailer H. H. Gregg, which operates 200 stores in the Midwest and Southeast, saw its shares drop 13 percent Thursday. Shares of Best Buy fell 10 percent as the store warned that third-quarter profit would be “significantly lower.”
“Amazon is having a major impact on a number of businesses,” said Jason Moser, who covers Amazon for the Motley Fool investment site and owns shares in the retailer. “We know that chief executive Jeff Bezos is quite patient and has plenty of financial resources. It appears his strategy is working. The third-quarter loss was modest and the long-term implications here are as strong as ever. My faith isn’t dented in the least.”
There are Amazon skeptics. Colin Gillis of BGC Partners published a haiku before the earnings report: “So much revenue, and with all those shipping costs, so little profit.” What his verse lacked in poetry it made up in cogent criticism.
Amazon’s operating margins have been about 2 percent or less for the last year. “Amazon has the lowest operating margin and the highest valuation in our technology company coverage,” Mr. Gillis wrote, adding that “the company is not likely to achieve material leverage off its revenue growth as costs associated with investments into its digital platforms build.”
Furthermore, “the nature of Amazon’s core business is that of a discount retailer, which limits margin upside.” In the second quarter, the analyst noted, Amazon increased revenues by $2.9 billion but income from operations declined by $95 million to $107 million.
The third quarter is mere preamble to the fourth quarter, where Wall Street expects significant revenue growth powered by new Kindle tablets and associated downloads. New warehouses are coming, bringing physical goods to customers so quickly that they will, in theory and no doubt in practice, order more.
Asked about same-day delivery, Mr. Szkutak said on the conference call that the warehouses have “helped improve our delivery speed to customers.” He added, “What I would expect moving forward would be more of the same.”

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