When The Profit Is Not Profitable Enough

Looking back to the early days of Amazon, there were stock pundits out there who laughed at the price of Amazon stock. The company was losing money, not showing a penny in profit, but investors loved it just the same. The stock price was bid up beyond normal expectations, especially for a company with huge expenses to cover.

Jeff Bezos, the early years

Amazon has released their quarterly profit report for the end of 2013 and it's happened. The firm that began as the world's largest bookstore is turning a profit. A small one, but then again, the average grocery store is happy to see a 1% profit. That's how it is when profit is based on volume, on selling a lot of stuff cheap.

Amazon investors are not happy. The investors are displeased.

No profit, and the stock climbs. Small profit, but it's not profitable enough and the stock is punished.

Amazon reported an increase in sales, so that's a good thing, you'd think. More sales is better. But investors felt that the more was not more enough, or not what they were expecting. Someone must be believing that the economy is roaring back and people are buying, to expect some big surge in growth. The fact is, for most who buy from Amazon because it's cheaper, they don't have to gas up the car to get the merchandise, and they can often save the expense of their local sales tax, they weren't buying more. The expectation was based on a false premise.

But the stock got punished just the same.

As for the prognosticators at Amazon, they've issued guidance for the upcoming year that reflects far more modest growth. They know their clientele, and they know there isn't a lot of extra money out there for things that are not critical to life. Things like hardcover books or gadgets or new clothes.

They may not even turn a profit next year, but return to the old days of losses. That should give the stock a big boost. The investors showed a preference for the money-losing Amazon back in the day.