Amazon (AMZN, Financial) this afternoon reported its third quarter earnings which spooked Wall Street with its 95 cent per share loss. Wall Street analysts expected a loss for the third quarter of 74 cents. The firm's revenues came in at $20 billion, a 20% increase from the previous year and also saw operating cash flow rise 15% to $5.71 billion, compared to $4.98 billion in the same time last year. Amazon's free cash flow rose to $1.08 billion compared to $388 million last year. The firm had an operating loss of $544 million in the third quarter compared to last year's $25 million. Net loss was $437 million compared to $44 million last year. During the third quarter, the firm poured $21 billion into operations that up 23 percent from last year. Amazon funneled that money into a wide range of initiatives, such as 13 new fulfillment centers, Amazon Fresh, a category expansion mainly into apparel, a $2.2 billion expansion into India, and new digital freebies like Prime Music and Prime Video. At the end of September, the firm had shares outstanding of 481 million, compared to last September's 475 million.
New products in the third quarter
During the third quarter, Amazon revealed the new Kindle Voyage and the Fire HD Tablet, the kids' Fire HD editions. The firm also revealed its new kindle HD 8.9-inch and the Amazon Fire TV that became best sellers in the United States, the U.K. and Germany. The company also revealed a new round of games from Amazon Game Studies and the Twitch acquistion for $1.1 billion. Amazon in the third quarter continued to expand Amazon Fresh service.
What Amazon expects from its fourth quarter
The firm expects net sales of between $27 billion and $30 billion, which would be a 7-18% growth rate year-over-year. Amazon expects its operating loss to be between $570 million and a gain of $430 million.
Amazon stock tank a buying opportunity or not
Amazon is the largest American online retailer in the world that has been dominating online retail for over a decade. This is the reason so many book stores around the country have gone bankrupt or out of business. Amazon sells for 1.89x its sales when it should sell for 2.5x; this would value the firm at $440 per share, far above its current share price. At 2.5x, its sales are still below eBay's (EBAY, Financial) average price to sales. Amazon doesn't have any earnings and is currently reporting net loss after net loss, quarter after quarter. The firm is not losing money because it's unprofitable or unable to make money; it's clearly spending all the potential profits that are coming in every year to be reinvested in the the firm's current operation or to expand into new businesses. Clearly, Amazon is giving up short-term profits for long-term gains in market share, which will expand its potential profits in the long term. The more the firm spends its potential profits for the future market share and growth, the more the share price will suffer losses, which will give long-term growth investors the opportunities to acquire shares in Amazon at lower prices in the near term. Amazon is a classic Philip Fisher growth stock, not a Benjamin Graham kind of stock to buy. Amazon is the kind of stocks growth investors should buy, not value investors.
