Investors are losing patience with Jeff Bezos’ game plan for Amazon.com Inc.
Shares of the online retail giant sank 8.3% on Friday, driving its year-to-date stock value down 28%, after the company reported weak earnings Thursday and predicted a dismal holiday season.
Since Amazon began in 1994, founder and Chief Executive Bezos has focused on category expansion, revenue growth and staving off competition — and not so much on profits, which have rarely exceeded the razor-thin.
Long-term investors have done extremely well. Some have seen increases of several hundred percent as Bezos expanded far beyond retail into e-readers and tablet computers, cloud data storage, music and movie streaming, Hollywood movie production and more.
Amazon’s efforts in the hardware world — the Kindle e-reader being the most popular — have never set the world ablaze. Indeed, its new Fire phone has flopped so far since it began selling in July, and that might mark a watershed for investor sentiment.
In the last three months alone, shares have tumbled 20%. The stock lost $26.12 on Friday to close at $287.06.
On its website Friday, research firm Zacks.com mused that “Amazon has taken a very aggressive stand to maintain supremacy in its chosen markets, but whether it will succeed in these plans looks like an open question now.”
A few analysts downgraded Amazon stock. But Bezos still has his defenders. MarketWatch noted that some analysts are looking past the failed Fire smartphone to focus more on the company’s overall operations, including its high spending and weak international profit margins.
John C. Ogg, writing for 24/7 Wall Street, said that even analysts “giving up hope” on Amazon are doing so with “not enough conviction.”
As Amazon heads into the lucrative end-of-year shopping period, the company posted a third-quarter loss of $437 million — about 10 times the $41 million it lost in last year’s comparable quarter. Sales, however, rose 20% to $20.6 billion.
With its weaker sales and profit forecast for the fourth quarter, Amazon is on track to lose an estimated $40.5 million for the year, which would be the company’s largest annual loss in 12 years, according to data compiled by Bloomberg.
The results explain the growing lack of support for Bezos’ strategy of spending big and counting on sales growth to make up for minuscule profit. Bezos has poured money into everything from smartphones to original television programming to drones, keeping margins razor-thin.
In contrast, Chinese online retailer Alibaba Group Holding Ltd., which overtook Amazon as the world’s largest e-commerce company last month based on market capitalization, makes healthy profits.
“The biggest component is the expense side of the equation,” said Scott Tilghman, an analyst at B. Riley & Co. in Los Angeles. “They’ve got a big checkbook they keep writing upon, which all results in a top line that is less robust than thought.”
Amazon’s rate of spending over the quarter exceeded its sales growth. The company poured $21.1 billion into operations in the period, up 23% from a year earlier.
The company is spending earlier in the year to build its delivery network to prepare for the holidays, so those costs are showing up earlier as well, said Chief Financial Officer Thomas Szkutak.
The fourth quarter is typically Amazon’s most lucrative, given an influx of shoppers who buy gifts for the holidays.
Amazon is ramping up to be ready, saying earlier this month that it plans to hire 80,000 seasonal workers in the U.S. to help process orders, up from 70,000 last year. In Britain, Amazon has said it will hire 13,000 workers for seasonal roles this year.
Bloomberg News was used in compiling this report.