Reality Check

Reality Check

April 25, 2013

Amazon's Long-term Strategy

By Robert Hashemian, Vice President of Web Development

Amazon will be releasing its earnings for the past quarter tonight and a quick look at the activity in the front options shows bets on both sides with the calls edging out puts. That could mean that some are expecting good earnings from the retail company tonight.

Going by history, Amazon has been missing the earnings targets relatively consistently and some with high margins. At this point the street is expecting a mere 9 cents a share with some analysts expecting losses.

For 2013, expectations are that Amazon's earnings will be $1.47 per share versus a negative 9 cents per share for 2012. The stock hovering in the $275 area isn't far from its all time high of $285 and with a market cap of $125 billion it's hard to ignore that this company is way over-valued.

But again, going by history, chances are that Amazon will report a quarterly loss, lose a few dollars off its share price, and get right back on the saddle and continue the stock momentum. It has been the same story for this company since it was founded 17 years ago and the operative term has been "long-term."

Ever since its inception, Amazon has relied on "long-term" to maintain its sky-high valuation. With every miss comes the promise of the long-term and how it is investing for the future. It is astounding that Amazon has been able to string along investors for so long. At some point companies need to demonstrate earnings and possibly even return some of the earnings in the forms of share buyback or even dividends. Not Amazon, the long-term has been coming for 17 years and it may go for another 17 years.

So does it matter what Amazon will report tonight? Probably not. It will release the earnings, keep hammering the long-term vision and the investors will keep buying the shares. Long live the Long-term!


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