Sunday, October 5, 2014

Should Amazon Change Its Current Trajectory?

Should investors feel so much frustration about the lack of profits at Amazon? Amazon grew to be the largest world's largest online retailer, and even the ninth largest retailer overall by 2018. The business opened in 1995 has grown so large that it has revolutionized retail and entertainment, but it fails to deliver a profit many investors would wish to see from such as large company generated a revenue of $74.4 billion in 2013 with only $274 million in net income or $745 million in operating income. Furthermore, the quarter 2 earnings showed a net loss of $126 million when revenues rose 23% in a year, but there as an expected operating loss of $410 million to $810 million in the third quarter. The losses caused a drop in shares of around 10% in after-hours trading after the losses were announced, which shows that the company is losing many investors that do not wish to keep their resources invested in an unprofitable company. Many investors were patient in the past because of how shareholders believed in the founder's statements that short-term profits are not as important as long-term growth and evolution, but is the future of Amazon today? Why should investors wait to receive their payoff if the company is already so large when it has never even paid a dividend? Amazon's long-term prospects are questionable because its invests are not certain to payoff and there are other online retailers that are matching and often exceeding the quality of customer service offered at Amazon, so the widespread admiration of Amazon may start to fall and cause the company to be an over-valued logistics company that may become forced to play by the same rules as everyone else by needing to deliver and dividends shareholders need. It's noteworthy that Amazon's shares grew by 255% in the last five years when the S&P 500 increased 85%, but year-to-date in 2014 the shares of Amazon fell around 20% when the stock market is up 7%. I understand many people admire Amazon, but the numbers are much more important to me and they do not paint an optimistic picture for the company. There are many ways Amazon may try to justify such bad financial performance by mentioning how revenues are increasing and how its portfolio is changing, but the bottom line is that the company is NOT profitable and that is what matters in any business. Thus, should Amazon change its current trajectory somehow to not compromise its achievements because its growth may become severely undermined by delivering losses to the shareholders that may lose their patience?

1 comment:

  1. http://en.wikipedia.org/wiki/Betteridge's_law_of_headlines

    Most investors are pretty clever and can see a pretty huge payout coming their way, I think, just as soon as Amazon stops investing. Their investments look pretty sound based on their companies history.

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