On July 27th, Jeff Bezos — the founder of Amazon.com — became the wealthiest man in the world for a brief moment. His worth was recorded at $90 billion at the time, though he fell off the top of the list shortly thereafter. This had an interesting impact on shares of Amazon stock, which has been a notoriously unique technology stock to follow.
Stock Surges and Drops
Bezos was able to top the list of billionaires due to a surge in Amazon stock, which precipitated their earnings report. It was only a decade ago when Amazon stock was considered to be a poor purchase, but since then Amazon has substantially increased its profit and revenue and has diversified through a variety of different services.
In particular, Amazon has been able to monopolize cloud computing services through Amazon Web Services, even though its digital storefront (Amazon.com) is what it’s most known for – in addition to having very high revenue but very slim profit margins.
When Amazon’s earnings reports came in, they were lower than expected — which plummeted the stock and moved Bezos’ estimated net worth down to third place. The earnings reports were significantly lower than they should have been, at a 2.9% deficit.
Amazon’s Stock May Continue to Struggle
Though Amazon has developed fairly solid fundamentals as a company, it has struggled repeatedly with monetization. Amazon as a whole tends to spend as much money as it brings in, which can cause investors to hesitate even if the tech giant has expanded to unprecedented heights.
Following this lower than expected earnings report, it’s likely that Amazon’s stock is going to continue to struggle for some time. However, that may actually represent a solid opportunity for investors who believe that the stock is solid and that it will rebound.
Amazon’s earnings report missed Wall Street estimates by the largest amount since 2001, which has also created a more unpredictable atmosphere which make make investors hesitant to continue to invest. Long-term investors may not need to worry, but short-term investors may want to wait before they jump into the market again.
Questionable Business Decisions
In addition to the revenue reports, recent business decisions made by Amazon have also been found to be somewhat questionable. Investors have wondered about the decision to acquire Whole Foods and to launch a brand of unlabeled products. The acquisition of Whole Foods also indicated that the company may have purchased an over-valued asset. Amazon is additionally struggling with competition from all sides.
Walmart has extended its own online, e-commerce branding, and Google Express has been expanding aggressively into Amazon’s consumer base. All of this together means that some analysts may be wondering whether Amazon’s decisions are going to cause some issues in the future for the company’s profitability.
As with many tech companies, Amazon does have some history of experimenting in different markets sometimes at the expense of reduced revenue.
Hope for Amazon’s Profitability
Other issues regarding Amazon’s profitability relate to their method of customer procurement, which can involve some loss-leading items in the interest of acquiring customers that will stay and have a long life-time value. As Amazon continues to expand on its own, particularly through international markets, it may be introducing many of these loss leaders to new markets.
The revenue associated with these actions may not be obvious in these reports, but instead may become more pronounced in the future. Consequently, investors who do trust in Amazon’s methodology may want to continue investing now.
Regards,
Ethan Warrick
Editor
Wealth Authority
