Wednesday, January 30, 2008

Amazon Has Boffo Q4, Guides For Great 2008, But...

Amazon beats the Street for the Top Line and meets the Street estimates for EPS (Earnings per Share) and provides 2008 Guidance that beats the Streets estimates and the share price is down 11% after hours. Huh? Oh yeah, there's that pesky little metric called operating margin that dropped by 7 tenths of a percent Y/Y.

"The fourth-quarter gross profit margin fell to 20.6 percent from 21.3 percent a year earlier and 23.4 percent in the third quarter."

Unfortunately, I wasn't able to listen in on the Earnings conference call, so I will have to wait until the transcript is available to see where that pesky little .7% went.

Maybe I look at things a little different than Wall Street, but when I compare Amazon's growth story to eBay's, I come up with prefering Amazon over eBay every time.

Tell me something, my wise readers and professional investors. eBay is far more profitable than Amazon, but their growth is slowing and yet they sit on nearly $5 Billion in cash rather than re-invest it. After earnings their share price goes down but not significantly (after all, it is already near the 52 week low it established in mid January). Amazon on the other hand, has a fantastic Q4, guides to a very good 2008 (especially in light of fears of recession) and its share price tanks in After Hours trading (down 11% at the time of this post) Amazon reinvests in their business on an ongoing basis and yet they are punished by the market. What give here?

I don't own shares in either company and I'm a novice investor, but the way I look at it Amazon just keeps growing (the law of big numbers doesn't seem to have affected them) and is earning more each quarter. Isn't that a good thing? I would be investing in Amazon long-term, though today I would have taken a huge hit.

eBay, on the other hand, is very profitable but the growth is slowing (the law of big numbers appears to be affecting them) and the only way I would invest in eBay is if they were paying a dividend (I mean, why sit on $5 Billion when you could be reinvesting it in your business or acquiring other businesess to stoke that growth.) I know they've bought back nearly $4 billion worth of stock already and will buy back another $2 Billion but that doesn't seem to have affected the share price. So, since eBay is no longer a growth story why would someone own their stock?

I'm sure I'm missing something here and would greatly appreciate those of you who know more about investing, to explain this to me. Who would you put your money behind, long-term?

Just my 5 cents!

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