In case you missed it, last night Amazon reported sales of $19.38 billion in Q2. Wow, eye-popping right, up 23.5% year over year.? Except one little problem, the company only netted an operating profit of $40 million. Wait, what???
For years, AMZN investors have been rewarded for the company’s fabulous sales growth. To put this into context, I stated in a post in June:
Since the stock bottomed in November 2008, to its all time high made in January of this year, it rose more than 1000%. While annual sales have grown from $19 billion in 2008 to this year’s expected $90 billion, operating profits are expected to be just a tad higher than the $842 million back in 2008.
For those of you who have been following at home, this shouldn’t be news. But it seems that this measly profit has only now started to bother investors. The stock has been down about 10% following the last 3 quarterly reports, including this one.
As Enis just said to me, “you have to admire Jeff Bezos… as one of the very few public CEOs in the history of Wall Street (or any street for that matter) who has convinced investors and analysts to wait for profits for 2 decades”. A truly amazing feat.
In a market where valuation has not mattered until it does, and with a controversial stock like AMZN, having a memory of past sentiment shifts could be a helpful guide to identifying inflection points.
Jeff Bezos was one of the poster boys for the Internet Bubble of the late 1990s. He was memorialized as Time magazine’s Person of the Year in the last week of 1999, a fitting end to decade that saw one of the most dramatic accelerations of technology since the dawn of man:
From the day of that cover to exactly one year later, AMZN’s shares declined almost 85%:
In the most recent downturn, during the U.S. financial crisis, Jeff Bezos had little to do with that mess. The stock was riding high once again, having rallied 1700% off of the 2001 lows, nearly overtaking the prior bubble highs. That rally had a lot to do with the hope of profits from new businesses like the Kindle book reader and their push into cloud storage:
Like clockwork, in November 2007, near the highs of the market (prior to what would be a 50% peak-to-trough decline of the S&P500), Jeff Bezos graced the cover of Newsweek with the news that Amazon was “reinventing the book“:
From the Nov 2007 cover to the lows in late 2008 AMZN shares declined about 56%, and 65% from the highs earlier that year:
And now the gazillion dollar question. Was Jeff Bezos’ now infamous appearance on 60 Minutes detailing their plans for drone delivery of goods the top for this cycle? As CC tweeted in May:
— CC Lagator (@cclagator) May 9, 2014
The idea behind all of this isn’t that Jeff Bezos is somehow a worse CEO following media hype. (although there is data saying this is true for CEO’s in general) The idea is that the media hype generally signals the high point of sentiment and a reversion to mean is usually around the corner. (the Sports Illustrated Jinx theory)
Since the December 1st 2013 profile, Amazon is down 20%, and at one point in May was down 30% from the all time high made in January:
If the current sentiment persists with the stock, I would expect a re-test of the prior lows near $285 from May with the late 2012 breakout level the next real level of massive support. I would also note that throughout the stock’s massive ascent over the last 5 years, the stock has hugged its 200 day moving average (purple below), an important momentum indicator that the stock has broken meaningfully two times in the last few months:
Only time will tell if this was another inflection point in the history of this crazy stock. The fact that the other major inflection points coincided with major market selloffs is another interesting thing to remember. Does investor sentiment as far as what AMZN is willing to get away with signal changes in overall market sentiment? Only time will tell.