Amazon's quarterly income declined year over year, but bested Wall St. expectations by a wide margin
Amazon late last week released its earnings for the first quarter of 2012 and impressed analysts with net income of $130 million and EPS of $0.28. This beat Wall Street expectations, causing the stock to jump up about 15%, closing the trading day on Friday at $226.85 a share.
The funny thing about Wall Street, though, is that stocks fluctuate based on the often mis-informed predictions of analysts, not pure fundamentals. To wit, Amazon’s share price rose because analysts were expecting EPS of about $0.06. Amazon, with an EPS of $0.28, clearly delivered earnings that blew past the consensus. But at the same time, it’s worth pointing out that Amazon’s net income in Q1 2012 was substantially lower than it was in Q1 2011, from $201 million to $130 million, a drop of 35%. What’s more, earnings also decreased from $0.44 in Q1 2011 to $0.28 in Q1 2012.
So Amazon’s income and EPS goes down, and the stock price goes up because the quarter wasn’t as bad as analysts were anticipating. Further confusing things is Amazon’s exorbitant P/E ratio of 186, but I digress.
Aside from its share price, one other metric that increased was Amazon’s revenue, which grew by 34% year over year. That’s quite impressive, but with quarterly profits going down, that revenue growth becomes a tad less meaningful. One wonders how much money Amazon is losing on the wildly popular Kindle Fire. Rumor has it that they may be selling it at a loss and aiming to recoup their money with Amazon Prime subscriptions. Such a scenario would certainly account for the rise in revenue and decrease in profits.
