Shareholders Remain Resolute on Amazon’s Shrinking Profits
- 7th August
- Campbell Phillips 1099
US online retail giant Amazon reported a 96% slide in its Q2 earnings, positioning it $191 million shy of the profits it had achieved a year ago. Should this cause a run on Amazon shares?
Last week, the online retailer Amazon reported a 96 percent drop in earnings for the three months ending in June. The company also announced it is likely to fall short of forecasts for Q3, potentially losing more money.
The slide comes as no surprise, as the company has been spending heavily on various initiatives, including $65 million paid for the acquisition of Kiva Systems, the company that builds and designs robotic warehouse solutions.
On the other hand, Amazon’s sales figures have been on the rise, gaining year-on-year by 29 percent to a total of $12.83 billion. That’s up almost $3 billion from the same time last year.
In this sense, it’s a mixed bag for investors who might be expected to shy away from the massive reduction in profits. Instead, Amazon stock has gained 6.8 percent since the announcement was made, indicating they may be willing to hold out for the earnings to return.
According to The Wall Street Journal, Amazon is still carrying the kind of valuation shared with many tech start-ups, even though it is now fifteen years since it first appeared on the stock market. Amazon’s valuation is currently more than 200 times its earnings forecast for this year.
Shareholders may be optimistic, however Amazon will need to demonstrate it can start to take the reins on its expenses and begin to increase earnings before this sentiment is justified. Given the long-term nature of its investments, it may be some time before Amazon begins seeing significant returns.