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Amazon Posted Its First Profit In Months, but Stocks Fall

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Amazon Posted Its First Profit In Months, but Stocks Fall

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Amazon Posted Its First Profit In Months, but Stocks Fall

Amazon posted results yesterday for its all important holiday quarter. One of the surprising things about this quarter is that Amazon posted a nice profit of $239 million, after several quarters of almost no profit or outright losses. And yet the stock was absolutely crushed, falling 10% in after-market before recovering slightly.

How come?

The results fell slightly short of expectations, but that alone doesn’t account for the swing. The bigger reason tells you how markets work. The main reason why Amazon tanked is that it posted guidance–Wall Street speak for how a company thinks it’s going to do over the next quarter–below expectations. And that makes a world of difference.

In finance theory, the value of any asset–a house or a company–is the net present value of its future cashflows. In other words, what determines what a house or a stock is worth is how much money it will make in the future. The value of a money-producing asset is equal to all of the money the asset will earn in the future (discounted to today, because a dollar today is worth more than a dollar tomorrow). The asset’s past performance is only relevant insofar as it tells you something about its future performance. This is the key thing that people always forget. It helps explain why revenue-less startups can be valued at billions of dollars, and why Apple can tank as it posts record profits, and Amazon can soar as it loses money.

Now let’s think about that within the context of Amazon. Over the past few quarters, Amazon has been losing money–and yet investors have sent the stock soaring. Why is that? If a company is losing money, it can mean several things. It can mean that its business is not working. But it can also mean that it is investing in businesses that will pay off in the future. In other words, if the company is losing money, it can mean it becomes more valuable since it means it will make more money in the future–and remember, what an asset is worth depends on the money it will make in the future.

Of course, any company that’s losing money will have a CEO saying that it’s because of “investment” and not because its business is doomed, and investors shouldn’t necessarily trust it. Why did they do it for Amazon? Because Amazon has done it before. Amazon has shown that when it invests, it generates future cash flows–when it invests, it makes the company more valuable. Amazon lost money for its first 8 years as a company. After the dotcom bubble burst, everyone thought Amazon was toast. And yet, Amazon and its CEO Jeff Bezos showed they knew how to make money. And from 2003 to now, Amazon has been minting it with its incredibly popular retail franchise.

And now Amazon is investing in new lines of business: warehouses so it can offer better shipping; Kindle devices and services; cloud computing; video streaming, and more. Remember, if a company is losing money, it could mean its business is not working–but Amazon has shown that its core retail business works. If Amazon is losing money, it means it’s investing in new lines of business. That’s never a guarantee of success, but Amazon has a great track record of making its investments pay off–and so investors are being totally rational in bidding up the stock, because it’s a very sensible bet that when Amazon invests, it is increasing its future cashflows, and therefore increasing its future value.

Now go back to yesterday’s quarter. Amazon posted okay-ish results. But that’s the past. What it said about the future is more important. It posted guidance (about the future) below expectations. It also suggested that it might raise the price of its phenomenally successful Prime two-day-shipping program. That’s also about the future.

When Amazon was losing money, there was a totally rational reason for its stock to go up. Now, Amazon might be making money, but it’s telling Wall Street the future might be less bright than it expected. It’s totally rational for the stock to drop. If you understand those reasons, it means you understand that the value of an asset depends on its future prospects, not the past. And if you’ve understand that, you’ve understood the most important thing about markets.

Source: Forbes


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Oh SNAP, here comes Amazon: EMC drops prices for Syncplicity

Source: The Register Hardware

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Source: The Register Hardware   Full article at: The Register Hardware 2 days ago, 7:24am CDT


Update: 10

Brazilian environmentalist upends presidential election race

Source: Asia One

Ukraine, BRASILIA (Reuters) - Environmentalist Marina Silva could defeat President Dilma Rousseff if Brazil's October election goes to a second-round run-off, according to a new poll that saw the challenger entering the race in second place.Silva, now with support of 21 per cent of voters, has drawn almost three times more backing than the late centre-left candidate Eduardo Campos who she is p ...
Source: Asia One   Full article at: Asia One 2 days ago, 6:35am CDT

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Update: 9

The 4 Biggest Marketing Implications From Amazon's Fire Phone

Source: AdWeek

Amazon’s New Fire phone has been out for less than a month, but already a number of brands like eBay, Fandango and Orbitz are eyeing the phone for potential marketing opportunities. Amazon’s phone doesn’t have the same scale as Apple’s iPhone or other Android phones, but the bulk of its features come from pre-installed apps that could potentially phase out branded apps (which require consumers to download, open and use them regularly). Therefore, brands ...
Source: AdWeek   Full article at: AdWeek 2 days ago, 6:00am CDT

Update: 7

Alleged Schematic Shows iPhone 6 Coming with 1GB of RAM

Source: Mac Rumors

Apple's forthcoming iPhone 6 may sport 1 GB of RAM, according to a leaked schematic shared by Chinese Apple repair firm GeekBar (Google Translate, via G for Games). The chart is said to come from an internal supply chain source, however it is unknown if the schematic is intended for the 4.7-inch or 5.5-inch iPhone 6. If the chart is indeed legitimate, the iPhone 6 would join the iPhone 5, iPhone 5s, and iPhone 5c in sporting 1 GB of ...
Source: Mac Rumors  Full article at: Mac Rumors 2 days ago, 5:45am CDT

Update: 6

Flipkart (and Myntra) Beats Jabong, Amazon as Most Visited Retail Site: Report

Source: NDTV

The Flipkart group of websites (including Myntra) had more visits in July than Jabong and Amazon ...
Source: NDTV   Full article at: NDTV 2 days ago, 5:45am CDT

Update: 5

10 Things In Tech You Need To Know Today (AAPL, GOOG, YHOO, AMZN)

Source: The Business Insider

Good morning! Welcome to the work week! It's going to be clear and sunny today in New York. Let's look at the tech news you need to know: Apple might name the 5.5-inch iPhone 6 the iPhone 6L. It's based on an unsubstantiated rumor from an Asian Apple site, so treat it skeptically, but the name makes some sense. Amazon is taking a less data-driven approach to its new original TV shows. It is trying to get proven talent to ...
Source: The Business Insider   Full article at: The Business Insider 2 days ago, 5:33am CDT

Update: 4

Brazil makes progress on saving forests, Indonesia risks setbacks

Source: Asia One

OSLO - Brazil has made good progress in safeguarding the Amazon rainforest but Indonesia's plans for its forests could face setbacks under a new government, a report commissioned by top forest aid donor Norway said on Monday.Norway, rich from offshore oil and gas, paid 10.3 billion crowns ($1.7 billion) to slow tropical deforestation from 2008-13, according to the report by the state-funded Norwegian Agency for Development Cooperation (Norad)."Brazil's deforest ...
Source: Asia One   Full article at: Asia One 2 days ago, 5:19am CDT

Update: 3

German authors protest to Amazon over e-book price war

Source: Channel News Asia

BERLIN: More than 1,000 German-language writers have signed a petition protesting against the methods used by online retailer Amazon in its e-book price battle with Scandinavian publishing house Bonnier. Taking their cue from US writers involved in a similar protest over Amazon's e-book dispute with Hachette, nearly 1,200 authors signed an open letter in which they accused Amazon of "taking writers hostage" in its pricing batt ...
Source: Channel News Asia   Full article at: Channel News Asia 2 days ago, 5:10am CDT

Update: 2

Popular Burger App for Kids Bamba Burger heads to the iPhone and Android

Source: MacMegasite

Singapore – Bamba today is pleased to announce that Bamba Burger, the best burger-making app for kids, is now available on the iPhone and on Android. With over a million downloads worldwide, Bamba Burger allows kids to combine wacky ingredients to make their very own custom burger. Following up on strong consumer demand, the developers decided to bring Bamba Burger within reach of iPhone users by making the app Universal. What’s more, Bamba Burger has been su ...
Source: MacMegasite   Full article at: MacMegasite 3 days ago, 2:00am CDT

Update: 1

Returning: Ripper Street

Source: TV Tonight

UK period thriller Ripper Street is back on TEN next week for its second season. These episodes aired in the UK last October after which the show was axed by the BBC. But it was then thrown a lifeline by Amazon for a third season, with Matthew Macfadyen and Jerome Flynn still on board. “Pure As The Driven” When a sergeant from K Division is thrown from a window and impaled on the iron fence below, DI Reid’s investigation leads him and his team to Chinatown and a new and destructive opi ...
Source: TV Tonight   Full article at: TV Tonight 3 days ago, 1:50am CDT

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