Amazon Low 3rd Quarter Results and 4th Quarter Expectations
Despite the upcoming holiday season, Amazon reported disappointing third quarter results and low expectations for fourth quarter profits, this as shares of Amazon.com dropped more than 8% in Friday’s trading. As a result, top analysts now question if Jeff Bezos, company CEO can turn things around.
Based on Friday’s plunge, Amazon is now down 28% for 2014, putting the company close to the bottom of top-rated technology corporations. To some experts, this indicates the company’s decision to invest in several projects was off base.
As stated by Thomas Szkutak, Chief Financial Officer with Amazon, the company is being selective about the new projects it takes on. For years, the strategy was to spend the money necessary to grow and expand into new areas but this has not paid off as expected.
One such attempt involved Amazon trying to enter the smartphone market but after launching the Fire Phone, the effort backfired. Although its three-dimensional capability was one of the phone’s primary features, it did not peak consumer interest.
The company has also been offering a video streaming device, along with a streaming video service, e-book readers, and numerous tablets. In addition, Amazon invested in loyalty program services that cost $99 a year, grocery delivery services, and original television shows to include “Transparent”, a critically acclaimed film starring Jeffrey Tambor.
As far as Amazon trying to enter the television show market, investors feel extremely uneasy at the prospect of a retailer trying to clash with reputable and established brands like Netflix, as well as various media giants. Overall, investors are getting irritated with Amazon’s strategy of investing in new products and services as a means of boosting revenue growth while at the same time reporting losses or thin profit quarter after quarter.
Of even more concern is the company’s projected poor fourth quarter sales since Amazon is still a retailer that strongly depends on holiday shoppers. To investors, slow sales during the holiday season show the company is still struggling. However, this is still a valuable company with a stock price at 150 times the estimated earnings for next year.
Bezos is known for being a visionary and someone who will remain optimistic in spite of less-than-desired quarterly performances. Even so, some analysts are unsure if his long-term vision is viable.
Currently, revenue growth is expected to be only 7% to 18% for the 2014 holiday season. After Friday’s loss, company stock hit at $287.06, a reported low for the year. Based on this decline, an estimated $12 billion in company value was lost.
In a statement from R.J. Hottovy, analyst with Morningstar, the market was looking more in terms of operating income and revenue, as well as the fourth quarter outlook. Retailers are going to face a competitive landscape this holiday season and to compete for consumers, Amazon needs to be aggressive.
Bezos claims that Amazon will remain focused on making the 2014 holidays easier and as stress free as possible. To ensure this, roughly 80,000 seasonal workers have been hired and the Sunday shipping service has expanded. Amazon also has over 50 distribution centers in the United States, 40 more than in 2014 and by the end of the year, the company plans to open eight smaller sorting centers.
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