Amazon.com (AMZN) stock is taking a major hit on its earnings report so we’re going to dive right into the details.
Company Overview: We all know Amazon.com. This is the biggest online retailer out there and you can buy just about anything you can think of and have it delivered to your home in just a few days.
The Earnings Breakdown: Amazon.com reported earnings after the close yesterday and the results pushed the stock 10% lower. The good news is that they beat analysts’ expectations, revenue increased 35% for the quarter and the company is growing about twice as fast as the competition. The bad news is that the company’s search for new growth opportunities is cutting into margins (profits fell 60% for the quarter) and a shift to third-party sellers is impacting revenues. Last year, AMZN posted earnings per share of $0.91 per share. This quarter, earnings came in at just $0.38 per share.
And it doesn’t look like this will be a one-quarter event. Amazon.com also announced that it might post a loss for the first quarter—the worst case would be a $200 million loss. This is not the kind of outlook analysts or investors were looking for and that’s why the stock opened $20 lower this morning.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For the past year, AMZN has bounced between a “buy” and “hold.” This is mostly because margins, earnings and cash flow have been weak. For the last two months I’ve had a hold on the stock in anticipation of weak earnings. Since that is exactly what the company reported yesterday after the close, I don’t see any reason to change my outlook on AMZN.
Bottom Line: If AMZN weren’t such a well-known brand, this stock would be an outright sell. But, hardcore believers are keeping buying pressure in solid territory and that’s what’s keeping my overall ranking of the stock as a “hold.” The lesson here is to make sure that you are not buying stocks with weak fundamentals this earnings season.
Sound Off: What do you think about AMZN’s earnings? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.