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KUALA LUMPUR: Pelakon, Emma Maembong bangga dengan semangat adiknya, Ahmad yang tidak kenal erti putus asa dalam meneruskan perniagaan, biarpun pernah berdepan kegagalan. Sales and Revenue Are Up, Why Is Amazon Down? (AMZN) By Vanessa Page | February 24, 2016 — 7:15 AM EST SHARE Fiscal 2015 saw Amazon.com Inc. (AMZN) issue its best operating income yet, but at present the stock is down 20% from its 52-week high. What went wrong? Analysts Are Never Right Amazon’s biggest share price drop of 2016 came when it released earnings on January 28th. Despite record-breaking profit, Amazon failed to have as high a profit as predicted by analysts, causing its share price to tumble 13%. Let’s examine analysts’ track record with Amazon: fiscal 2014 saw earnings per share (EPS) almost double what was expected. Subsequent quarters saw the same situation replaying itself, over and over. Why are analysts often mistaken when guessing what Amazon is going to do? Take the following example. In the latest earnings press release, Jeff Bezos writes that Amazon’s 2016 goals are to have between $100 and $700 million in operating income. The spread between those two numbers makes it hard to know what to expect from Amazon in 2016. The company can earn $600 million and still be considered a wild success or a disappointment, depending on how optimistic the analyst is. (See also: Five Amazing Technologies Developed By Amazon.) Scatterbrained Business Plan Perhaps another cause of the 13% drop in Amazon’s share price since earnings is due to the overwhelming nature of its January press release. Not one to shy away from his accomplishments, Bezos released document with pages of Amazon’s achievements in 2015. While impressive, investors got an eyeful of the hundreds of different services in which Amazon is invested. (See also: Is Amazon Too Diversified?) People looking for a low-margin retail stock would be shocked to see the amounts of money that are going to non-retail operations. Producing Golden Globe winning TV shows is great but it’s also expensive and uncorrelated to the bottom line. Echo, and its accompanying personal assistant Alexa, are two pricey and odd products. Alexa is meant to replace other personal assistants on the market without requiring users to use their smartphone. The idea is to entice customers to become more engrained into the Amazon world but the product and technology don’t seem to have a practical use. A celebrity-heavy commercial ran during the Superbowl in February 2016 showing off Echo and Alexa. At an average cost of $5 million for a 30-second spot, investors waking up on Monday might have reconsidered their investment – the stock was down 3% the day following the ad. Amazon Spends Too Much Money Amazon’s fulfillment costs – the amount of money it spends to package and mail its products, increased a whopping 33% in 2015 when compared to the same quarter in 2014 and 25% for the year when compared to 2014. This percentage contrasts with the respective 22% and 20% increase in sales over the same time periods. This is an unsustainably high amount of money. Amazon’s cash flow strong cloud-computing service Amazon Web Services can subsidize the retail portion for now but this business model can’t continue indefinitely. (See also: Three Amazon Business Segments to Watch in 2016.) Amazon must get a grip on its shipping costs. The company’s two latest attempts to minimize fulfillment costs – drone delivery and private delivery – are very expensive and will take years to implement. Investors in 2016 are unwilling to wait the five-plus years that it will take Amazon to execute their new delivery services. In the meantime, investors and observers were surprised and confused mid-February by a bizarre announcement that Amazon will be opening 300-400 retail locations nationwide. The report from Sandeep Mathrani, a mall executive, was soon refuted by Amazon insiders. Later, the claim was reported as true, albeit on a smaller scale. Rumors make the stock market uncomfortable and this back and forth led to a further decrease in Amazon’s share prices – both from investors who wanted to get out before Amazon got into brick-and-mortar retail and from investors who chose to sell because Amazon isn’t opening brick-and-mortar stores. Amazon’s stock just can’t win in February. The Bottom Line Amazon, despite recent success, is not a profitable business in the long-run. The cost of operations is too high and subsidized by new service developments. Bezos, a man obsessed with spending any free cash flow, will find new ways to re-invest this $1 per share of earnings back into Amazon. Whether the company’s next project will be a Fire Phone or Amazon Web Services is anybody’s guess. Read more: Sales and Revenue Are Up, Why Is Amazon Down? (AMZN) | Investopedia https://www.investopedia.com/articles/investing/022416/sales-and-revenue-are-why-amazon-down-amzn.asp#ixzz5R0ENjUHW Follow us: Investopedia on Facebook