Amazon.com (AMZN) shares are up a solid 10% in after hours trading today, even after earnings missed expectations by nearly every metric. Growth in operating earnings was enough to send shares soaring, but where there is smoke there is usually fire. To be sure, I recently covered a small starter AMZN short position for a profit earlier this week and attempted to re-short the name after the after hours pumping. Unfortunately for me, however, shares of AMZN are currently unavailable to short right now. What this means is that the gap higher likely caused many shorts to cover in a panic while new shorts cannot add to the supply of shares in the market. Meanwhile, the bulls don’t care at all about the fundamentals but only the price, so the fact that the stock is up another 10% doesn’t really influence any of them to sell. If anything, it’s a form of confirmation bias to their underlying thesis of riding the Bezos momentum as long as humanly possible.
Something tells me this all ends badly, however, because at least Apple had earnings and cash flows to buoy the stock on a fundamental basis. With Amazon, the company is incredible but the stock is a bubble.
Here are the numbers raw and un-cut — we aren’t going to spin these but simply present them without comment as we too are in awe of this modern stock market spectacle:
“The company’s fourth quarter profit declined from the year-ago quarter and was below Wall Street view. Net sales increased 22 percent, but missed the consensus estimate. The company forecast its first quarter sales to grow between 14 percent and 26 percent.”
Actually, the company’s fourth quarter profit didn’t just decline, it plummeted, down from $.38 cents a share last year to $.21 cents a share this year — down 45% is the new up I guess. The company missed bottom line estimates by around 25% and top line estimates were over a billion bucks shy of consensus estimates.
Don’t tell any of these hard facts to market participants, however, as in Amazon’s case any news is bullish even if it’s bad news. One has to wonder what the introduction of state sales taxes will do to Amazon’s razor thin margins and overall business model. Growth at any cost has certainly made this e-tailer a stock you either love or hate passionately. So what do you think the stock is worth? Feel free to comment below and tell me how ignorant I am of the leap in operating earnings and the visionary leadership of Mr. Bezos.