Amazon CEO Jeff Bezos’ magic spell over Wall Street is broken.
That, at least, is what Amazon’s stock suggested on Friday, tumbling nearly 10 percent after the online retail giant gave a disappointing profit outlook.
For years, Amazon shares have climbed steadily, reaching stratospheric valuations despite the company’s failure to consistently generate earnings. Its shares trade at a multiple of 500 times earnings — a lofty valuation that is reminiscent of the first dot-com bubble.
Investors have long been willing to bet that Bezos’ strategy of plowing the company’s cash back into its operations will pay off, eventually creating a spectacularly profitable gorilla of e-commerce.
Late Thursday, Amazon delivered first-quarter earnings that fit the pattern, with revenue surging 23 percent, to $19.74 billion, driving a relatively modest profit of $108 million.
The company’s outlook, however, may have shaken even the most loyal among the Bezos faithful.
Amazon warned that operating losses in the current quarter could total as much as $455 million, vs. an operating profit of $79 million just a year earlier.
That guidance included $455 million in stock-based compensation for employees. But it also stoked concerns on Wall Street about never-ending investments in infrastructure.
Amazon grabbed attention this week with its gargantuan effort to establish its own package-delivery network to reduce its reliance on FedEx, UPS and the post office.
“We expect the company to push deeper into delivery logistics, and while this may allow same-day delivery, it is likely to represent another major investment initiative,” said BGC Partners analyst Colin Gillis.
That, along with a slew of overseas investments in markets like China and Spain, means that Amazon “will be in ‘EPS push-out’ mode for at least another year,” said Canaccord Genuity analyst Michael Graham, referring to the company’s earnings per share.
The shares, which traded above $400 in January, on Friday lost $33.32, or 9.9 percent, to close at $303.83. The drop slashed the value of Bezos’ stake in the company by nearly $2.8 billion.
To counter rising shipping costs, Amazon recently hiked the price of its Prime premium shipping and video-streaming service to $99 a year, from $79 a year.
Amazon execs signaled Thursday that the price hike wasn’t getting pushback from customers. Still, it won’t be enough to offset continued shipping losses, says BGC’s Gillis. He calculates that Amazon spent $2.15 on shipping cost for every dollar in shipping revenue.
“With a shipping loss of $980 million in the quarter, the recently announced prime price increase is only going to be (a) small offset,” Gillis said.
Amazon, meanwhile, has spent lavishly on new product rollouts, including the new Fire set-top box, which has received mixed reviews.
Earlier this week, Amazon signed an estimated $300 million deal to gain exclusive video-streaming content from HBO.