Amazon.com and Pandora Media learn the hard way that potential profits just won't cut it anymore in this market. Take note, Twitter.
Updated 7/25/14 4:15 pm
Investors sent a loud message to e-commerce and social and streaming media companies on Friday: profit-less potential just won’t cut it anymore.
Nowhere was this clearer than at Amazon.com, which seems to be able to deliver everything these days — tablets, streaming video, even food — with the exception of earnings.
After the company announced a wider-than-expected loss Thursday, the stock fell nearly 10% Friday, helping push the entire market lower at the end of the week.
In what sounds like a broken record, the e-commerce giant reported another robust quarter of sales — up an impressive 23% versus the same period a year ago — yet still can’t seem to turn a profit.
As costs rose in the recently ended quarter — as the company invested in new areas such as its recently announced Fire smartphone and a new unlimited e-book rental service — Amazon AMAZON.COM INC. AMZN -1.77% reported a net loss of 27 cents per share. That was nearly twice the loss that Wall Street analysts had been bracing for.
Even worse, the e-tailer warned investors that the third quarter won’t be much better. Amazon officials forecast that net sales would likely grow between 15% and 26% in the current quarter but that the company would probably suffer an operating loss of between $410 million and $810 million.
For more than a decade, Amazon shares trounced the broad market, as company leaders managed to convince investors not to focus on short-term losses, but rather the long-term potential for this company to dominate retail and consumer electronics.
They tried to do the same on Thursday, pointing to the company’s entry into the smartphone market. “Customers all over the U.S. will begin receiving their new Fire phones — including Firefly, Dynamic Perspective, and one full year of Prime,” said CEO Jeff Bezos, in announcing his company’s results. “We can’t wait to get them in customers’ hands.”
Investors shot back: “We can’t wait until we start seeing some profits in shareholders’ hands.” By Friday afternoon, it was clear that investors have had it with Amazon’s just-you-wait attitude with earnings.
For the year, Amazon shares have lost nearly a fifth of their value.
The streaming music company reported a loss of 6 cents, which was worse than the 4-cent a share loss that investors were expecting.
The company tried to spin the news in a positive light by stressing its relative success in mobile advertising, a hot topic in tech these days.
“Our better-than-expected second-quarter results demonstrate success and continued business acceleration as a result of our investments in mobile and local advertising,” Pandora’s chairman and CEO Brian McAndrews noted in the company’s press release. “Mobile advertising reached a record 76% of total ad revenue and local grew at 144% year-over-year.”
Wall Street would have none of it.
As second-quarter earnings season gets underway, the market’s stance should worry other profit-less tech companies that are set to report their results next week.
On deck for Tuesday is Twitter TWITTER INC. TWTR -4.85% . The social media company, whose shares have already fallen 39% this year, is expected to report a loss of 29 cents a share when it announces its results next week.