So the bloom on the Amazon rose is finally starting to fade after another poor quarter (the third in succession) in which the company not only failed at the insidious game of beat-the-number played on Wall Street, but then topped off a disastrous set of results by warning of potential losses of up to $810 million in Q3 (half of which are stock-based compensation). Amazon shares were pounded when trading commenced with $16.5 billion being wiped off the market cap at the opening bell. To put that into perspective, that’s over six times the cumulative net income the company has generated since it IPO’d in 1997. And you can forget lessening the pain through rolling in dividend payments made during the last 17 years–the company has never paid one.
Investing hundreds of millions of dollars in ‘sortation centers’ to try to speed up delivery times which are already, in many cases, less than 24 hours seems like a pointless exercise. With its three-figure P/E ratio and margins which are running sub-1% (Apple’s gross margins are a massive 39%), Amazon is playing a very dangerous game with the jangled nerves of long-term investors. Add to that the discomfort caused by Amazon’s seemingly relentless investment into cloud computing–a business segment which is becoming more commoditized by the month with Google having recently cut its cloud prices and Amazon itself having cut AWS (Amazon Web Services) prices 42 times in the last 6 years. Should some of Amazon’s long-term investors, holders who have exhibited Job-like patience, decide to cut and run in favor of the likes of Facebook, for example, which is actually turning a considerable profit, the exit will become very crowded indeed.