Novice Investing - Amazon.com Amazes WallStreet

Date: Thursday 20th 2008f November 2008 05:38:35 AM

Amazon.com Amazes WallStreet - 10/25/2006

By: Novice Investing Staff

Earning reporting season is progressing. This time, it is Amazon.com Inc. (AMZN) turn to show the world its third quarter result. For the third quarter 2006, Amazon reported net earning of $19 Million or 5 cents per share. Although sales are up 24% from a year ago, net profit is down from 7 cents per share last year. All in all, the company forecasts higher sales for this coming holiday season while the profit picture remains murky. Management explained that Amazon continues to invest heavily on technology and content. (This depressed profit in the short run)

During the quarter, Amazon also purchased 8 million shares at a price of $ 252 Million ( or $ 31.5 per share). While we always applaud companies that buy back its own shares, shouldn't Amazon pay down its $ 1.5 Billion long term debt, first? Perhaps, the company feel that $ 31.50 stock price is undervalued. For 2007, most expects Amazon to earn 'only' 70 cents per share. That makes us wonder if Amazon.com is throwing money on expensive acquisition ( mainly, its own stock). Thus far, while Amazon had demonstrated ability to turn profit, it has yet to recoup its losses during its existence as a public company. Retained earning for the company stood at $ 2+ Billion last year.

Of course, what saves Amazon in the first place was its heavy technology spending during the techbubble. It expanded its offering from a mere book & music store into electronics, kitchen equipment and lawn mower etailers. That gives it considerable moat over competition. Amazon.com management seems to believe that their heavy investment would pay off eventually as it continues to branch out of its core book retail business. Just this week, Amazon.com announced that it is offering auto parts purchase through its website, which the company said was a $ 40 Billion market. Back in September 2006, Amazon announced that it is offering digital movie download from its website. Thus, basically, management hinted that they will spend if they have to. It is a survival question for them.

Anyway, investors are not the one running Amazon. Jeff Bezos ( CEO and founder of Amazon) have a strong business conviction that he will not budge just because someone criticize his move. This includes spending on technology. He has proved that his previous investment had averted Amazon.com from bankruptcy. We have to give him the benefit of the doubt this time.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Amazon.com Inc.. (AMZN) or any other securities.

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