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February 6, 2014

“No Cheer in Amazon’s Holiday” – Are You Kidding Me?

by Anne Paddock

Last Friday (January 31, 2014), the top headline on page 1 of Marketplace in the Wall Street Journal read:

No Cheer in Amazon’s Holiday

Online Retailer’s Revenue Rises 20% but Profit Disappoints: Shares Tumble

and, then on page 2 in the continuation of the article, the headline read:

Amazon’s Holiday Sees Little Cheer

Sounds depressing, no? Whenever I read the two words “disappoints” and “tumble,” I start to worry about a company. Is our nation’s biggest online retailer in serious trouble? Turns out Amazon is doing better than the headlines would lead a reader to believe. In fact, some people would conclude the company posted its strongest quarter ever.

For the fourth quarter of 2013, Amazon reported sales of $25.59 billion from $21.27 billion the year prior – an increase of $4.32 billion or 20%. Net income was $239 million, or 51 cents a share compared with $97 million, or 21 cents a share, a year earlier:  an increase of nearly 150%.

So why the doom and gloom headlines? Two reasons: analysts and journalists. Analysts were projecting earnings of 66 cents per share – a 215% increase over the same quarter last year. That the company only posted 51 cents per share caused the share price to drop $47 from $405 on Jan 30 to $358 on Jan 31. Higher fuel and transportation costs and higher foreign currency costs were blamed for the “shortcoming.” Analysts also don’t like slim margins, which is exactly what Amazon is all about.

To be the nation’s number one retailer, Amazon has had to offer a wide variety of goods at very competitive prices, and deliver the goods quickly. To increase sales, the company reduced margins – so much so that generally speaking, Amazon only makes a penny on every dollar in revenue – not a stealth performance by Wall Street standards. But, the blame doesn’t lie solely with the analysts. Everyone knows that bold headlines sell so journalists often put a negative spin on public news. The Wall Street Journal could have easily written the following headline:

Joy in Amazon’s Holiday

Online Retailer’s Revenue rises 20%, Profit up 150% 

and the words would ring with truth……but not garner the same attention. People read the headlines, panicked, and of course, the stock price “tumbled” when, in fact, the company should be commended for their improved performance. That the stock price may have been overpriced to begin with on Jan 31st is another entirely different issue.

To read the complete article from the Wall Street Journal, click here.

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