Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Amazon.com (AMZN -4.41%) have lost more than 7% -- worth roughly $10 billion in market cap -- following another disappointing quarterly earnings report, the giant e-tail octopus' seventh miss out of its past nine quarters.
So what: Amazon's aggressive reinvestment in its various businesses over the past few years has led to occasionally stunning unprofitability for a company of its size, and the third quarter was a particularly egregious example. The company's third-quarter revenue of $20.58 billion came in 20% above the year-ago quarter's result, but it was still a shade lower than the $20.84 billion Wall Street had expected. Amazon's bottom line fared far worse, as a loss of $0.95 per share was much weaker than the $0.74 loss per share Wall Street had expected -- and these expectations represented a massive downgrade from an earlier consensus that called for a loss of $0.07 per share before Amazon warned of rapidly rising costs in its last earnings call.
Investors were also put off by Amazon's disappointing fourth-quarter guidance, which forecasts sales in a range of $20.7 billion-$30.3 billion, or 7%-18% higher than the year-ago holiday quarter. The consensus had been for $30.9 billion in fourth-quarter revenue. Amazon's operating income guidance offered so broad a range as to be effectively useless, starting at a loss of $570 million and moving all the way up to $430 million, which compares unfavorably to the year-ago quarter's operating profit of $510 million.
Now what: A quarterly earnings disappointment is nothing new for Amazon shareholders, as CNBC analyst Giovanny Moreano pointed out after the report. Amazon's shares have often reacted violently to its earnings reports, and the stock's decline today is about par for the course for the past year, with each of the company's four quarterly reports released in 2014 resulting in a decline of at least 8% after the closing bell.
The most widely circulated story on Amazon's earnings is that investors and analysts are finally getting fed up with the company's complete lack of interest in turning a profit, which has long been an easy target for financial pundits -- writer Matthew Yglesias has famously called Amazon "a charitable organization run by elements of the investment community." This well-worn argument hasn't stopped Amazon's shares from climbing before, and Amazon bulls are unlikely to change their tone today with so much history on their side. However, this has been Amazon's worst year since the financial crisis, with shares more than 25% lower than their closing value from the end of 2013. The market shrugged off Amazon's misses before, but it seems less inclined to forgive and forget in 2014.