Don’t Blame Amazon for Thursday’s Mayhem
Thursday was nothing short of a rollercoaster ride for Amazon.com, Inc. (NASDAQ:AMZN).
AMZN stock shot up eight percent on Thursday, only to tank 11% after-market the same day. They are saying it’s over for the Amazon FANG stock (an acronym that also includes Facebook, Netflix, and Google). But read this and it’ll quash all your worries.
I will shortly reveal who I believe to be the real culprits behind AMZN stock’s demise. But before I do that, take a quick look at these year-over-year growth numbers that Amazon posted yesterday.
Revenue jumped 22%.
Operating income increased 88%.
Operating cash flows shot up 74%.
Earnings per share are up a whopping 122%.
Even the guidance for the next quarter is in line with market expectations. Excuse my frustrated outburst that follows. But, why the heck is Amazon getting punished again?
Oh, right! It has to be a miss on Wall Street’s estimates.
Who to Blame for the Miss?
I’m pointing my fingers at two culprits. First, it is the Fed.
Don’t be surprised; the miss was partly the aftermath of the Fed’s last monetary policy move. Almost every other U.S. corporation is facing it. Now, pay attention to the one factor that remains common in their results…
The strong greenback!
The December rate hike is what strengthened the dollar against its peer currencies. Amazon lost $1.2 billion to unfavorable currency translations. Add that back and not only did Amazon beat Wall Street’s estimates, but it also broke all its records of growth. But the strong dollar is what put a big dent in Amazon’s numbers.
The second culprit to blame is the speculators who joined hands to make some quick bucks in a day. The speculators planned to hold until earnings and sell on the news if Amazon missed estimates. That’s exactly what happened. Investors played into the hands of these traders. Seeing the stock going up, the naïve investor herd followed. But as soon as the results came out, the stock nosedived.
My advice is this: don’t lose heart for these reasons!
Amazon is a growth story that keeps on paying. The company has come a long way since its inception. And to anybody who thinks its run for growth is over, you’re only fooling yourself.
“Twenty years ago, I was driving the packages to the post office myself and hoping we might one day afford a forklift,” Amazon CEO Jeff Bezos said, reminding us of the company’s humongous growth. “This year, we pass $100.0 billion in annual sales and serve 300 million customers.”
Amazon’s key business segments—e-commerce and “Amazon Web Services” (AWS)—have never been in better shape. Both these businesses continue to post robust growth. Meanwhile, the company is expanding its ecosystem through “Amazon Prime,” which saw a solid 50% growth in 2015.
The Bottom Line on AMZN Stock
To expect perpetual growth is sheer idiocy. Growth must slow down. Amazon’s growth may slow down, but the company still has a lot more room to maintain an uptrend.
Rest assured that while the weak-hearted may be abandoning ship on unwarranted fears, loyal investors should keep their eyes on Amazon’s long-term prospects. This isn’t the end for AMZN stock.