Amazon's Third Quarter Earnings Show Its Profitable But No Longer Sexy

Amazon reported earnings today that showed the company is finally starting to live up to its potential. But somewhere along the way, Amazon stopped being the poster child for the Internet. The problem is that while Internet companies have PEs of 30+, retailers have PEs of 10-15. What will it be for Amazon?

Amazon reported earnings today that showed the company is finally starting to live up to its potential.   The company reported earnings of $80 milion or $.19 per share for the quarter ended Sept. 30 versus earnings of $19 million and $.05 per share last year.  Its earnings beat Wall Street estimates.  Despite that, its stock fell by almost 8% in after hours trading.  What gives?

I think it's the realization by many that Amazon is no longer sexy Internet stock.  How can that be?  Its margins are more brick-and-mortar than virtual.  Amazon made $80 million on $3.26 billion in revenue for a profit margin of 2%.  Contrast that to Google which generated $4.23 billion in revenue last quarter and earned  $1.32 billion in income for a 31% profit margin.  Now compare their forward PEs.  Google's is 32.95 while Amazons is 65.05.  Which company would you rather own.

The reality is, Amazon is just a retailer that happens to sell its products via the Web.  It's cool, it's neat, but its not revolutionary.  Companies like Google, eBay, Yahoo are truly using the power of the Internet and will reap oversized returns because of it.

 

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Comments

  • John Clement

    October 28, 2007

    The stock has still moved from 25 to 85 in a little over a year.

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