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Tuesday, March 19, 2024
March 19, 2024

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Investors are losing patience with Amazon

The Columbian
Published:

NEW YORK — Amazon has long acted like an ideal customer on its own website: a freewheeling big spender with no worries about balancing a checkbook. Investors confident in founder and CEO Jeff Bezos’ invest-and-expand strategy flooded into the stock as the company revolutionized shopping, upended the book industry and took on the cloud — even though its vast range of initiatives ate up all the company’s profits.

After all, when Amazon.com filed for its IPO 17 years ago, it was very clear: the company would post losses for the “foreseeable future” while it invested in the business to drive bigger and bigger sales. Stockholders seemed to like playing Bezos’ long game: shares more than quadrupled between 2010 and 2014 to more than $400 apiece.

Lately, they’ve lost a little patience.

After the Seattle company on Thursday reported a huge third-quarter loss and issued a disappointing holiday forecast, the stock sold off by nearly 10 percent. It’s now lost 28 percent of its value since the beginning of the year, closing at $287.06 Friday.

Daniel Morgan, a Synovus Trust portfolio manager, invests in Amazon. He has no current plans to sell, but he knows Wall Street investors and analysts “tend to have very little patience; they don’t really want to hear a long-term story.”

What they want are answers. Particularly when there’s now another e-commerce powerhouse to invest in: Chinese e-commerce player Alibaba, which went public in September in a $25 billion initial public offering, the largest ever.

“Frankly, we believe it’s impossible to predict Amazon’s profitability during this prolonged ‘investment cycle,’ but profit metrics are clearly moving in the wrong direction and it’s a fair question to ask, does Amazon have too many ‘balls in the air’?” said Wells Fargo analyst Matt Nemer.

“We certainly have been in several years now of what I will call in investment mode,” he said on the call. “There’s still lots of opportunity in front of us but we know that we have to be very selective about which opportunities we pursue.”

For years, Amazon’s strategy has been spending the money it makes to grow and expand into new areas. It launched a smartphone, the Fire, this summer and has been offering a set-top video-streaming device, a streaming video service and several tablets and e-book readers. The company has also been investing in services for its $99-a-year loyalty program, Prime. It has added a grocery delivery services and music streaming for Prime members as well as offering original TV shows.

But all of those initiatives cost money and time to develop. And not all of them have been hits.

“The market was looking for more in terms of revenue and operating income and the fourth-quarter outlook,” said Morningstar analyst R.J. Hottovy. “It’s going to be a competitive landscape for retailers this holiday season and retailers will compete aggressively for consumers.”

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