Why Amazon.com, Netflix, and Facebook Are Today’s 3 Worst Stocks

Underwhelming quarterly earnings numbers and rising tensions between Ukraine and Russia sent stocks spiraling lower on Friday. High-growth stocks in the Nasdaq Composite Index bore the brunt of the pain, as investors fled to safer investments like utilities and treasuries. Amazon.com (NASDAQ: AMZN  ) , Netflix (NASDAQ: NFLX  ) , and Facebook (NASDAQ: FB  ) each finished toward the bottom of the S&P 500 Index (SNPINDEX: ^GSPC  ) today. The S&P 500 itself fell 15 points, or 0.8%, to end at 1,863. 

Amazon's investing a fortune in its set-top box, to investors' dismay. Source: Amazon website

Amazon.com finished as the most miserable performer in the entire index, plunging 9.9%, even after beating both sales and income expectations in the most recent quarter. It seems ridiculous to punish a stock for topping Wall Street estimates, and indeed, that logic would be absurd. The truth is that investors are worried about Amazon's compulsion to spend endlessly on expanding its business; the e-commerce giant actually projected an operating loss in the second quarter as it ramps up spending on its Fire TV set-top box and logistics services. 

Another Nasdaq component and household-name momentum stock, Netflix, shed 6.4% today. Like Amazon, Netflix is generously valued, trading at 174 times earnings. Amazon, in all its ambition and without regard to its profit margins, is aggressively expanding into Netflix's video-streaming business, as this week's unprecedented deal with HBO plainly reveals. While this deal looks like a direct threat to Netflix on the surface, my colleague Sam Mattera makes the compelling argument that Netflix and Amazon Prime are becoming so differentiated that they function as complementary services every true cord-cutter should have.

Finally, Facebook also ended as a victim of the high-growth sell-off Friday. Shares fell 5.2%, just a day after the social media behemoth reported a blowout quarter. Revenue in the first quarter rocketed 72% higher to $2.5 billion, while earnings per share in the period nearly tripled from $0.12 to $0.34. Though both results easily topped expectations, Wall Street was unimpressed with the monetization of some of Facebook's more recent acquisitions, i.e. Instagram. I'm afraid investors should get used to Facebook's recent ambitious acquisitions not paying for themselves immediately; while Instagram cost a cool $1 billion, the $19 billion WhatsApp acquisition probably won't turn profitable anytime soon.

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  • Report this Comment On April 25, 2014, at 7:44 PM, smauney wrote:

    Because they're dragging everyone into the future kicking and screaming?

  • Report this Comment On April 26, 2014, at 12:40 AM, DukeMontrose wrote:

    Disclosure = bear positions, initiated on March 27 + April 8.

    Yesterday this fool blogged elsewhere its first SWITCH recommendation of 2014.

    A switch = exchange one stock for an other.

    As an aside, this fool's superiors foolishly promoted him into partnership on the strength of his bull's eye switch recommendations, eons ago, around his 30th birthday.

    When the commissions started pouring in, the wise ones queried their best customers = what gives?

    A fascinating reply = this fool has such an atrocious Scottish-Magyar accent, one has to listen VERY carefully to his recos.

    A more serious response, an equally fascinating disclosure: the big boys get 100 buy recos, 2 sell recos + a single switch reco - from this fool. (Wonder if these ratios still apply now???)

    My switch yesterday = sell AMZN, buy AAPL, or per chance an "obscure" other high tech in the energy arena = SDRL. Translation = get about 10 shares of SDRL for 1 share of AMZN. not even 2 shares of AAPL for 1 share of AMZN.

    Reminiscing this fool mentioned yesterday his previous reco, some 3 years ago = sell 1 share of RIMM (Research in Motion) = the tech stock for the ages = to get 3 shares of SDRL. Published when RIMM's PER reached IMO unsustainable stratospheric hights, (but not as stratospheric as AMZN's still is!). The fashionista gurus were horrified.

    Expected later rather than sooner the shoe to fall.

    But it happened sooner rather than later. SUDDENLY! RIMM cratered = not even a name change to the sexier BlackBerry saved it from dropping into the single digits. Nowadays still wallowing below $10.

    Expected same = later rather than sooner, for this shoe to fall. But it happened sooner than later. Sooner? Suddenly? Like the next day? Good grief = AMZN down 10%+ in a single trading day.

    Now the fashionista gurus, to save their jobs if not their reputation, have started firing salvos of lower price targets + even smaller EPS =

    Even losses!!! Ouch!

    As a preventive salvo, last week Bezos announced proudly a deal to get the Sopranos into his fold. Gangster flicks to prop up a PER of 550+?

    (Almost as bad as getting a gangster KGB operative to create havoc from the Kremlin these days?)

    Good grief! Is that the depth we have fallen into?

    How far will AMZN fall? Per chance into the single or double digits?

    Please stay tuned, dear fools, as I plan to give you follow ups over the rest of this year + beyond. Of the ups as well the downs.

  • Report this Comment On April 26, 2014, at 3:42 PM, JAVKO wrote:

    Simply because they are overhyped and far more overvalued.

    AMZN invests for the long term! When are they going to make money?

    Have you ever had a business surviving with no profits?

    Keep hyping

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