Amazon’s Q2 2017 Financials: Okay, investors, I get it this time

Amazon’s Q2 2017 Financials: Okay, investors, I get it this time

Amazon just released their 2017 2nd quarter financials, and investors didn’t like it, dropping the stock 3.68% in a day:

CNN Money graph

Investors never seem to like what Amazon has to say (although the stock has gone up 39.49% this year). Well, they don’t like these Amazon financial reports generally at least, and not being a stock expert, that sometimes baffles me.

This time, though, I get it.

For one thing, Amazon is predicting a possible $400 million loss in the 3rd quarter (although it could also be up to a $300 million gain). I would assume that big a range of prediction isn’t attractive (“You’ll either win the race…or end up in the hospital” 😉 ), but it’s also a potentially big loss even without the range.

There were also these (not forwarding looking, but retrospective) results:

“Operating income decreased 51% to $628 million in the second quarter, compared with operating income of $1.3 billion in second quarter 2016.

Net income was $197 million in the second quarter, or $0.40 per diluted share, compared with net income of $857 million, or $1.78 per diluted share, in second quarter 2016.”

So, I can see how someone looking for steady gains would find this scary.

I can also tell you, I’m not going to just say everything is rosy and the investors are just getting  it all wrong.

However…

This is what Amazon does. It invests in the future (and in its customers) and looks long term.

If you want it to be a profit machine, that’s your mistake. 🙂

It’s worth noting that they did not include the proposed Whole Foods purchase in these calculations…while it still seems likely, it hasn’t happened yet and has been seeing some challenges.

One commentator noted that if it happened right now and all at once, it would pretty much wipe out their cash on hand.

If it does go through and Amazon does make it a success (again, I consider both of those likely), it will be a profit maker…which Amazon will then spend on some other future feature.

Prime Day (at AmazonSmile: benefit a non-profit of your choice by shopping*)

was giant, having unprecedented sales…but that, of course, actually hurts the bottom line (by selling a lot of things for relatively little money).

They did sign up a gazillion (they don’t give us precise numbers, and that’s my word, not theirs)

Amazon Prime (at AmazonSmile: benefit a non-profit of your choice by shopping*)

members…which is another big investment in the future.

You just have to accept that Amazon isn’t like a snake swallowing a rabbit, taking time to digest it, and then getting bigger as a result. It’s like a filter feeding  whale shark…it may even stay stationary as it sucks in nutrients, and things flow through it.

Interestingly, they did mention e-books and physical books this time, and they don’t always.

One comment was about the physical bookstores…although it touted their ability to let people interact with Echo devices. 😉 There are eight Amazon bookstores open now, with five more in the works (including one near me).

Another thing they mentioned was the growth of subsers (subscription services), specifically mentioning e-books, which means

Kindle Unlimited (at AmazonSmile: benefit a non-profit of your choice by shopping*)

I don’t think they count Prime Reading as a separate subser.

The growth rate was 53% year over year for subsers, which is a good sign. Amazon does spend to improve subsers, but with any subscription (a gym membership, for example), you are paying for potential. Part of how it works is that most people don’t use more of the service than it costs…although some do, and some use a lot less.

With Amazon, there’s also the whole thing of inspired sales. You can lose money on one thing, if it gets that person to spend more money on something else. As I’ve said before (and as a former brick-and-mortar store manager) that customers tend to look at each transaction, and the businesses look at the entire set of transactions.

Something that reasonably concerned some people was that the growth of AWS (Amazon Web Services), which can really be considered Amazon’s core business now, was slower. It was still there, though.

I expect that we’ll see that Amazon has invested in VAM (Virtual/Augmented/Merged/Mixed Reality) this year, and that the second half of the year will still be building (which they are always doing). The Whole Foods acquisition, if it goes through, will also mean a lot of investment.

I’ll look forward to hearing comments from some of my readers…they often have insightful takes on Amazon financials.

To help you out, here are some resources:

Bonus story:

Verso Books

is having a 90% off sale on all of their e-books, today only, Friday July 28th. Worth checking it out…

Join thousands of readers and try the free ILMK magazine at Flipboard!

All aboard The Measured Circle’s Geek Time Trip at The History Project!

* When you shop at AmazonSmile, half a percent of your purchase price on eligible items goes to a non-profit you choose. It will feel just like shopping at Amazon: you’ll be using your same account. The one thing for you that is different is that you pick a non-profit the first time you go (which you can change you want)…and the good feeling you’ll get. Shop ’til you help! 🙂 

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4 Responses to “Amazon’s Q2 2017 Financials: Okay, investors, I get it this time”

  1. Phink Says:

    The Kindle Oasis is out of stock, except black, and has been like that at least a couple of days now. I wonder if that means anything. I have checked both WiFi only and 3G. 3G was available in two colors yesterday but not today.

  2. Roger Knights Says:

    Here’s an interesting comment by Barry Bourgeault on Seeking Alpha:

    One of the weapons Amazon always has is its ability to boost its Prime membership fee and quickly change its margin narrative. That’s one reason I believe it’s acquiring Whole Foods (NASDAQ:WFM), in order to create more real and perceived value for its subscribers, in order to lower churn once it eventually boosts its annual fee.

    • Bufo Calvin Says:

      Thanks for writing, Roger!

      They are at a watermark point in price now, so they’ll have to be careful about it when they raise the price. I suspect we might eventually see a base price under $100 with add-on options. Also, if they raised the price $20, let’s say, they would definitely lose some people who would spend a lot more than that $20. It would be a small minority of people, of course, but they have to balance things.

  3. Amazon Q3: they mention e-books, and the stock goes up ;) | I Love My Kindle Says:

    […] Amazon’s Q2 2017 Financials: Okay, investors, I get it this time […]

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