Amazon.com, Inc. (AMZN): Worth Buying The Dip?

amazonBrad Hoppmann: Amazon.com, Inc. (NASDAQ:AMZN) shares plunged today (Friday). Jeff Bezos dares to be different, ignoring Wall Street’s quarterly game and investing in the future.

We’ve seen this before. Every quarter Amazon reports its numbers, and almost every quarter analysts scream that earnings aren’t keeping up with revenue. Nervous traders hit the exit, driving down the share price. Then, it quietly recovers.

Shareholders who ignore the noise and hold on to Amazon for two or more years have always done very well, but the wait can be agonizing.

Amazon.com is a great place to buy all kinds of merchandise at a great price. Now Amazon itself  is at a great price. Should you add some shares to your cart?

Amazon

Amazon shares dropped from $358.61 at Thursday’s close to as low as $314.76 today. That was a 12.2% loss at the worst point. What made this multi-billion company lose so much value?

Earnings and revenue were lower than analysts expected, but what really hurt the stock were management’s third quarter projections. They expect net sales will be in a range between $19.7 billion up to $21.5 billion.

If this happens, it will represent solid growth from the same period a year ago — somewhere between 15-26% — but Wall Street demands more.

The decisive factor was the third quarter profit projection. Amazon said there won’t be any profits next quarter. They expect to lose somewhere between $410 million and $810 million.

Amazon made a small $25 million profit in the third quarter of 2013, so this is quite a surprising swing.

Amazon’s accounting has always been hard to decipher. Experts think most of the loss originates in the Amazon Web Services unit. The company is in a cloud technology price war with Google(GOOGL) and spending millions to upgrade network systems that support Netflix (NFLX) and many other companies.

On the retail side of the business, Amazon is investing heavily in warehouse and shipping infrastructure. All these expenses cut into profits. Next quarter, they will wipe out all profits and create a loss.

That’s why so many investors sold Amazon today. They want to own a profitable company — and they just found out Amazon isn’t one.

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